Just as we examine companies each week that may be rising past their fair values, 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 company's 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.
Sharing is caring
This week I figured we'd start outside the box of my usual deep-value companies and look at a recent IPO that's losing money and is likely to continue losing money well into 2016: Care.com (NYSE:CRCM).
Care.com is an online marketplace provider for the managed health-care industries that connects individuals and families with caregivers. This encompasses expected needs such as taking care of the elderly but also includes child care and special-needs patients as well.
The argument against Care.com is simply that it isn't profitable. Normally, I would agree 100%, especially given the insane premiums we're witnessing for IPOs in the health care sector. In fiscal 2013, for example, Care.com's net loss widened to $28.3 million from $20.4 million in the prior year.
However, I see plenty of opportunity for Care.com, which is sitting on a rapidly growing niche audience. For the full year, Care.com grew its revenue by 68% to $81.5 million, while its total active membership ballooned 46% to 9.7 million members. The company also announced that its mobile visits increased 61% year-over-year with 52% of all visits coming from mobile devices.
Care.com is what I'd refer to as a "paper play." On paper it makes a lot of sense because an aging baby boomer population is likely to yield a dramatic rise in demand for home care and caregivers over the coming decade and beyond in the U.S. Because Care.com is the largest such online marketplace provider for caregivers it holds niche pricing and branding power, which it should be able to use to its advantage. It also operates in more than a dozen countries around the globe, giving it geographic diversity as well.
Furthermore, since this is still a young market, I believe it has the potential to grow its revenue by double digits through perhaps the remainder of the decade, yet it's only trading at roughly five times this year's projected revenue. If Care.com can successfully focus on mobile monetization and maintain its superior market share, there's a good chance that the stock will head higher from here.
A secure investment
Care.com has had a rough go since its IPO, but Internet security software solutions provider Symantec (NASDAQ:SYMC) had a miserable week, ending lower by 13% on Friday after its board announced the termination of CEO Steve Bennett, who led the company for about a year and a half. Replacing Bennett in the interim is board member Michael Brown.
Skeptics have a number of reasons to be concerned here, especially if Bennett is no longer in charge. Bennett's focus had been on streamlining Symantec's operations and refocusing the company on core areas, including information and data storage security. With his departure some investors are clearly concerned that until a permanent replacement is named Symantec will fall off track. It also doesn't help that revenue fell 5% in the third quarter.
There's also the ongoing worry that cloud-based software solution models such as Palo Alto Networks (NYSE:PANW) will be able to pilfer Symantec's market share given that most of their updates can be done on the host end rather than the client end. Also, companies like Palo Alto are well adapted to take on the challenges associated with the social media realm, perhaps more so than a company like Symantec.
Still, Symantec may offer long-term and value-oriented investors a reason to begin nibbling. To begin with, it's incredibly cheap at less than 10 times forward earnings, with $1.8 billion in net cash. Symantec is already paying out better than a 3% yield to investors and can easily afford beefy share buybacks or even an increase in its quarterly dividend, in my opinion.
What's still important, though, is its OEM relationship with PC and electronics manufacturers. Despite weakened PC sales, this relationship delivers secure cash flow, which it can control by tight management of its expenses. As we saw in the third quarter, despite a 5% drop in revenue its operating margin actually improved 370 basis points after adjusting for currency effects, and adjusted EPS rose 13%. This cash flow will allow it to develop new offerings for cloud and storage-based providers while ensuring that it remains healthfully profitable. Investors should certainly acknowledge that Symantec has issues to work through here, but it's not as dire as Wall Street would have you believe.
Man's best friend
Finally, it could be time for investors to take a look at a pharmaceutical company geared toward helping out man's best friend, Zoetis (NYSE:ZTS).
Spun off from parent Pfizer last year, Zoetis announced solid fourth quarter results in February, which were highlighted by a 7% jump in revenue when including negative currency effects -- and an EPS that more than tripled to $0.36 from $0.11 in the year-ago quarter. Zoetis noted that its Asia/Pacific region provided the biggest percentage pop, with revenue up 14% overall.
But investors weren't necessarily on the same page as Zoetis, with its share price getting hit following the company's fiscal 2014 EPS forecast of $1.48-$1.54 on $4.65 billion-$4.75 billion in revenue, both shy of Wall Street's expectations. I do believe we have some currency issues at work here which are negatively affected Zoetis and causing the company to be cautious about its EPS forecast. Beyond that, however, everything seems to be on track.
In its latest quarter the company grew revenue across all geographic regions, and it's seeing strength in both the domestic pet market and livestock. To add, Zoetis also stands to benefit from the fact that most pet owners consider their pet to be part of the family and will pay through the nose to keep that pet healthy. The end result for Zoetis is healthy margins which it can use to fuel dividend growth or further its pipeline.
At 17 times forward earnings Zoetis isn't exactly cheap in the traditional sense of the word, but pet ownership is on the rise, which likely means ongoing demand for Zoetis' pharmacologic products. As the old saying goes, "Slow but steady wins the race." Zoetis looks like a good bet to outperform for investors over the long run.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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