Just as we examine companies each week that may be rising past their fair value, we can also find companies trading at what may be bargain prices. While many investors would rather have nothing to do with companies wallowing at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to a companies' bad news, just as we often do when the market reacts to good news.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
Click to win
You can imagine my amazement when I pulled up a screen of companies at new 52-week lows and saw marketplace and mobile-payment giant eBay (NASDAQ:EBAY) atop the list.
The bets have been streaming in against eBay from short-sellers because of weak retail-sales trends that are expected to reduce consumers' spending this holiday season. There is some merit to these fears, as back-to-school season was abysmal for teen retailers, and the implementation of Obamacare's individual mandate on Jan. 1 has more people thinking about getting and paying for insurance than about shopping for Christmas. Still, I feel you'd be silly to pass up eBay at a new 52-week low.
To begin with, the e-tailing marketplace is essentially a duopoly between eBay an Amazon.com (NASDAQ:AMZN). I know there are a gazillion other retail marketplace websites out there competing for your viewership and consumer dollars, but few have the history or following of Amazon and eBay. What eBay has that few other e-tailers have, though, is its own mobile-payment facilitator in PayPal, which makes shopping extremely convenient for customers.
This holiday season could be the first in which we see a dramatic transition away from brick-and-mortar stores and toward Internet-based retailers, which can often undercut brick-and-mortars on price due to lower overhead costs and are the clear leaders in shopper convenience. With product costs high on consumers' minds and eBay consistently growing at 15% annually, I can't remember a scenario where eBay has looked better recently.
A near-perfect score
It's been good times in the housing sector for practically all industries, save for one -- residential real-estate investment trusts.
The housing industry has benefited from historically low lending rates, which have allowed home prices to improve as demand from home buyers increases. Conversely, low lending rates put pressure on residential REITs: Residential REITS own apartment communities, and low lending rates threaten to drive up vacancy rates as renters become home buyers. That's one reason, with rates at a four-month low, why Post Properties (NYSE:PPS) has sunk to a new 52-week low.
However, I see one good reason for investors to be excited about Post at this price: The end of the Federal Reserve's monetary easing program known as QE3 is within sight, which should help lending rates move toward the historical average. That will give significant pricing power to rental-property owners like Post Properties, which should be able to capitalize on prospective buyers being pushed back into renting because of higher interest rates.
In its third-quarter results, Post Properties delivered a nearly perfect occupancy rate of 96.3% -- one of the highest I've come across in the residential-REIT sector -- and has grown its core funds from operations by better than 10% through the first nine months of 2013. With a handsome yield of 3% to boot, I feel Post Properties is an attractive housing play you should take a deeper dive into at its current price.
There are few sectors where merger and acquisition activity makes more sense right now than the regional banking sector, in which numerous companies have turned to lowering expenses and maximizing deposits in an effort to compete against larger national banks. One company I feel you'd be wise to keep your eyes on, as it could draw buying interest, is southeast Virginian bank TowneBank (NASDAQ:TOWN).
First off, keep in mind that this is purely speculative on my part; I don't have any knowledge of an impending buyout offer here. I just view the improvement in Towne's balance sheet and operations as something that could draw the attention of a larger suitor.
TowneBank, in its third-quarter results, delivered a sizable drop in nonperforming assets of 69 basis points, hitting 1.22%, while nonperforming loans dipped to a microscopic 0.43%. Although net interest margin continues to be a struggle with lending rates hovering near historic lows, TowneBank is making all the right moves necessary to draw in interest-bearing deposits and make smart loans. This has left TowneBank with an exceptional tier 1 common equity ratio of 10.62% and also allowed it to recently boost its quarterly payout by 11% to $0.10 per share.
With the company valued at just 5% more than book value and monetary easing set to ease soon, Towne looks perfectly set up to benefit for the remainder of the decade and, as such, could be eye candy for a larger Chesapeake-based bank looking to gobble up growth.
This week's theme is using macroeconomic trends to look past near-term weaknesses in the aforementioned stocks. The push toward Internet retailing and the eventual end of QE3 should provide notable catalysts for eBay, Post Properties, and TowneBank that could help them rebound off their recent downtrends.