Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
Light it up!
Hold on to your chairs, folks, because the first pick this week is way outside of the usual fundamental value picks I often tend to focus on. Instead, I'm going to suggest we follow fellow Fool Rick Munarriz's suggestion for September and take a closer look at recent specialty e-tailing IPO LightInTheBox (LITB -4.07%).
Aside from having one of those names that's a nightmare for Microsoft Word to comprehend, LightInTheBox is an intriguing company that's growing by leaps and bounds. The company itself focuses on selling niche items like cocktail and wedding dresses which are predominantly uncharted territory when it comes to direct-to-consumer items, and forecasts call for sales growth of 50% next year. As Rick mentions, despite being based in China, and having that Chinese stigma of questionable fundamentals attached to the forefront of U.S. investors' minds, it's profitable and it garners much of its sales from North America and Europe.
The past quarter was where LightInTheBox tripped up, warning of a sequential quarterly revenue decline and being hit with investigations from law firms soon after. The truth is that LightInTheBox is still a young company, but the platform is profitable! The company is operating in a niche category with little genuine competition and it's expanding its presence rapidly around the globe. Given that it's now trading at just 18 times forward earnings with a 50% growth rate, I think investors would be foolish not to have this name on their Watchlist.
Commercial REITs are hot, hot, hot!
In recent weeks I highlighted Kimco Realty (KIM 3.23%), a shopping-center operator with nearly 900 properties across North and South America. Kimco has been on a buying spree recently, gobbling up properties while interest rates are still low and occupancy demand from retailers remains robust. With brand-name tenants such as Wal-Mart in its portfolio, Kimco is among the cream of the crop of retail REITs.
Today, I'm going to add a competitor to that list in Weingarten Realty Investor (WRI), which owns a cumulative total of 290 properties, of which 286 are shopping centers. Like Kimco, Weingarten focuses on finding investment grade tenants and locks these businesses into long-term contracts. This means steady cash flow for Weingarten and the assurance, at least with its recent acquisitions, that it's paying a very low level of interest on its debt.
Why Weingarten (and Kimco for that matter) has been hit recently is the presumption that higher interest rates are going to preclude these REITs from making too many new debt-financed acquisitions. While somewhat true, it also discourages businesses from undertaking enormous projects of their own and pushes them back into renting which is why Weingarten will continue to maintain such strong rental pricing power. With occupancy rates rising to 94.2% in the most recent quarter and the company boosting its funds from operations forecast (and remember, FFO is a determinant of how big of a dividend shareholders receive) I think all systems are clear for Weingarten to head higher.
Much ado about nothing
If shareholders in commercial multi-family lending company Walker & Dunlop (WD 6.53%) only read the first couple of highlights in its most recent quarterly report, they'd be struggling to figure out why their stock tanked by 25% last month. Nearly every figure was up across the board thanks to W&D's acquisition of CW Capital, which resulted in a 94% boost in revenue, a 91% increase in loan origination growth, and a 65% rise in adjusted net income. Game-set-match, right?
Well, unfortunately for W&D shareholders, the Department of Housing and Urban Development ran out of commitment authority and the Federal Housing Finance Agency levied a 10% reduction on 2013's government-sponsored entity lending volumes for multifamily properties during the quarter. Simply put, this means lower loan originations for W&D, since it originates most of its loans in the multifamily space.
However, shareholders should relax and not overthink the magnitude of this temporary paring back by the FHFA. In total, W&D merely lowered its full-year originations guidance to $9 billion to $11 billion from its previous forecast of $10 billion to $12 billion. Overall, though, this would still represent net revenue growth this year of 35% and a projection of 11% revenue growth next year. Fundamentally, at less than eight times forward earnings, unless the government is going to put the kibosh on GSE-based multifamily lending for many years down the road, then W&D could make for an intriguing value buy here.
This week's theme is all about not overthinking the reason for the move lower in each stock. Sure, LightInTheBox and Walker & Dunlop put up a quarterly stinker, and interest rates aren't working in Weingarten's favor as much as they were a few months prior; but these companies also offer unique niche, growth, or value advantages to their peers that make them attractive.