While many companies' shares are rising past their fair values now, others are trading at potentially bargain prices. The difficulty with bargain shopping, though, is that you may be understandably hesitant to buy stocks wallowing near their 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.
Boring is often better
To start off a fresh week of value hunting, I'd suggest beginning in the financial sector with U.S. Bancorp (NYSE:USB).
Like most large money center banks, U.S. Bancorp has been hit in recent months by the fears of a U.S. and global growth slowdown. If growth continues to slow in China, Europe, or in the U.S., big banks could be hit by a double-whammy. First, consumers and business may take out fewer loans, which would slow their growth; secondly the Federal Reserve would likely halt its interest rate hike plan, which would crush the hopes of investors who've been eagerly awaiting an increase in banks' net interest margins.
The great news for the buy-and-hold value stock investor is that these are easy fears to look past. The primary reason is that U.S. Bancorp has always been a very conservatively run bank. It avoided investing in derivatives prior to and during the near-financial meltdown of the last decade, and its loan portfolio isn't nearly as reliant on mortgages as some of its peers. Roughly a quarter of its lending portfolio is dependent on the housing market, which means minor downturns in the housing market may not even alter U.S. Bancorp's growth strategy.
What strategy might that be? Just your typical bread-and-butter of the banking business (say that five times fast): increasing deposits and making high-quality loans. Especially strong growth was observed in U.S. Bancorp's loan portfolio during the fourth quarter, spurred by continued low interest rates. Commercial loans rose by just shy of 10% on a year-over-year basis, auto loans rocketed 13% higher, and credit card loans increase by close to 5%.
As long as U.S. Bancorp can continue to attract high-quality clientele from the commercial and consumer sectors, and can boost deposits, there's no reason to believe it won't eventually bounce off of its lows. Sporting a reasonable forward P/E of just 11 and carrying a 2.6% yield, this is a value stock in the banking sector that long-term investors should consider looking into.
There's nothing generic about this value stock
Next, we'll take a walk over to the healthcare industry and take a brief look at small-cap specialty generic drug developer Teligent (NASDAQ:TLGT), which has lost roughly a third of its value since October.
The big issue for Teligent is simply that it isn't predicting it can meet Wall Street's lofty expectations. For the fourth quarter, Teligent rolled past Wall Street's forecast with ease, generating $13.1 million in sales and a loss of $0.02 per share. However, looking ahead it guided 2016 full-year sales to a range of $60 million to $70 million when analysts had forecast $77 million. As you might imagine, Teligent shares took a thumping.
The good news is this weakness looks likely to be short-lived, due to a mountain of potential positive catalysts on the horizon for Teligent. After filing 11 abbreviated new drug applications (ANDAs) in 2014, the company announced the filing of 15 more ANDAs in 2015. The company ended the year with 31 ANDAs under review by the Food and Drug Administration, with a market value of approximately $1.4 billion, excluding its quartet of partnered submissions. In other words, Teligent's specialty generic products are at the ready -- it's just a matter of shareholders being patient and the FDA doing its job.
Another point to consider is that generic usage in the U.S. -- and presumably around the world -- is expected to rise over time. Partially this relates to the finite nature of brand-name drug patents, but it also speaks to the growing need for affordable therapeutics, which generic drugmakers tend to provide.
Although Teligent may not look like a traditional value stock, its sales are forecast to nearly quadruple from $44.3 million in 2015 to an estimated $172 million by 2019, and the company is projected to earn $0.43 in EPS that year as well. Valued at around $5 per share, Teligent's PEG ratio could be very attractive within a year or two.
How about a little IT glee?
Last, but not least, I'd suggest turning your attention to the technology sector where information technology services and cybersecurity solutions provider NetScout Systems (NASDAQ:NTCT) is looking potentially tempting after a transformative series of transactions.
In 2014, NetScout announced that it would be acquiring Danaher's (NYSE:DHR) communications business for $2.6 billion worth of stock. The deal included Tektronix Communications, which offers a complement of intelligence and test services for mobile and video networks; Arbor Networks, which protects enterprises against distributed denial-of-service attacks and advanced threats; and Fluke Networks' network monitoring solutions segment. NetScout's goals were to broaden its customer base, keep its business closely linked with Danaher, a testing and measurement giant for a host of industries, and push into the Cyber Intelligence market.
Aside from the expected spike in revenue, potential cost savings, and more diverse enterprise customer base, what shareholders are probably looking most forward to is the potential for growth in cybersecurity. Your average criminal these days is far more sophisticated, which means IT companies like NetScout are going to be counted on more than ever to provide solutions that protect their clientele. Markets and Markets is forecasting a compound annual growth rate in cybersecurity sales of nearly 10% per year through 2020.
NetScout also has a very favorable shareholder return policy and cash position following its transformation. It's repurchased 5.26 million shares of common stock for an aggregate cost of $203.8 million through the first nine months of fiscal 2016, and it ended the latest quarter with $376.2 in cash and cash equivalents compared to $250 million in debt.
Valued at 10 times forward earnings and 75% of book value, NetScout may be too inexpensive to pass up.
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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