While many companies' shares are rising past their fair values now, others are trading at potential bargain prices. The difficulty with bargain shopping, though, is that you may be understandably hesitant to buy stocks wallowing at 52-week lows. In an effort to separate the rebound candidates from the laggards, it makes sense to start by determining whether the market has overreacted to a company's bad news.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
Obamacare or bust
For health-benefit providers, the Affordable Care Act, better known as Obamacare, has been a boom or bust scenario.
Initially expected to bring more than 20 million newly insured into the system by the end of 2016, the Congressional Budget Office has pared back its expectations substantially and now anticipates just 10 million enrollees by the end of next year. This weaker-than-expected enrollment, compounded with sicker individuals enrolling for health insurance, has caused giants like UnitedHealth Group to rethink whether they want to be a part of the marketplace. However, one company that doesn't have these concerns is Anthem (NYSE:ANTM).
First, Anthem has landed millions of new enrollees via the Medicaid expansion under Obamacare. Low-income residents in 30 states earning below 138% of the federal poverty level may qualify for health insurance that's completely covered by the federal government. While these may not be the highest margin customers for Anthem, a payment from the government results in guaranteed cash flow.
Secondly, Anthem has enrolled around 1.7 million people on Obamacare's marketplace exchanges in the individual market. Anthem is likely to benefit in the coming years from a reduction in competition through half of Obamacare's healthcare cooperatives closing up shop. Less competition should make it easier for Anthem to offer premiums at a higher price point in order to pad its margins against those aforementioned sicker enrollees.
As long as Obamacare remains the law of the land, Anthem's forward P/E of 12, PEG ratio of just 1.2, and yield, which is nearing 2%, make it look quite attractive for value stock seekers.
Don't worry, be happy
Speaking of value stocks that can't seem to catch a break, how about hard disk drive and solid-state drive manufacturer Western Digital (NASDAQ:WDC), which has been clobbered since announcing a deal in October to purchase NAND memory manufacturer SanDisk (NASDAQ:SNDK) for $19 billion.
The big concern, as my Foolish colleague Evan Niu noted in early November, is that Western Digital is sort of gambling on how quickly it can close its SanDisk deal. Western Digital previously announced an investment by Unisplendour Corporation through which it would take a 15% stake in the company. If this investment closes prior to the closing of the SanDisk buyout, Western Digital could be on the line for a substantially larger amount of cash to fund the deal, instead of relying more heavily on its common stock if the SanDisk deal closes first. Investors are obviously concerned about the cash and regulatory uncertainties surrounding this deal.
However, there may be a lot to be excited about as well. Perhaps the biggest benefit is the potential vertical integration of SanDisk's and Western Digital's NAND flash supply business. Combining these two juggernauts should produce cost synergies, improve margins, and further secure Western Digital's market share within data centers and with consumers.
But adding SanDisk should also be a boon for Western Digital's storage business. Research firm Stifel Nicolaus recently opined that the combination should help Western Digital better serve its core markets, ranging from retail to enterprise, and that it'll actually be more nimble now with its ability to shift its manufacturing focus to the latest hot trend.
With a forward P/E of just eight and a dividend yield north of 3%, value investors may want to take notice of Western Digital.
A smart move with an aging population
Lastly, I'd encourage value investors to take a gander at real estate investment trust Omega Healthcare Investors (NYSE:OHI) if they want to take advantage of an attractively priced stock sitting at the precipice of a favorable long-term trend.
Why would Omega Healthcare Investors be down over the past year? Much of the blame very well could be tied to the expected rise in lending rates from the Federal Reserve. REITs sometimes turn to financing to close acquisitions and cover construction costs, and their historically cheap access to capital may not be as cheap in 2016 or beyond. Rising rates also make safe-haven investments like CDs or bonds a little more attractive relative to dividend stocks.
Whatever the reason for the drop, I believe the skeptics are overlooking an exceptional value stock here. Investing in healthcare facilities will allow Omega to take advantage of an aging boomer population across the United States. Although it doesn't directly benefit, as, say, a hospital or primary clinic would from an influx of patients, Omega's pricing power when it comes to leasing its assisted living and skilled nursing facilities rises substantially as the demand for healthcare services rises and boomers age.
It could also be argued that Obamacare has made life a bit easier for Omega Healthcare Investors. Making medical access easier than ever should allow more people to get the medical care they need in order to live a longer life. A long life is great news for Omega, as it's counting on an increase in senior living facilities in the coming decades.
Sporting a forward P/E of just 10 and a superior 6.5% dividend yield, value investors would be smart to get this stock added to their watchlist.
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.
The Motley Fool owns shares of Western Digital. It also recommends Anthem and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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