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.
Grow a money tree from this "Akorn"
Sometimes the best deals can be found in value stocks that have taken an unfair beating, which is why I've selected controversial drug developer Akorn (NASDAQ:AKRX) as this week's first pick.
Akorn's woes stretch back almost a full year now. In April the company announced that it would be restating its earnings from the final three quarters of fiscal 2014 due to accounting errors that led it to likely overstate revenue and pre-tax income. At the time of the announcement Akorn suggested that it could lower the company's full-year income by $20 million to $35 million. For added context, Akorn earned $59 million in 2014. Although auditors found no intentional wrongdoing, accounting snafus are rarely seen in good light, and Wall Street has let Akorn have it to the tune of a nearly 70% shellacking from its 52-week high. More recently the company pegged the official overstatement at $35 million.
Yet I believe there's an opportunity here for Akorn that the market is overlooking. I'm certainly not going to cheer the company's accounting errors one bit. However, the reason those errors came about was from two substantial acquisitions: Hi-Tech Pharmaceutical and VersaPharm. These are critical transactions that essentially quadrupled Akorn total assets on a year-over-year basis in 2014, and should lead to generic drug portfolio diversity that Akorn may have taken years to achieve.
Another important point is that the demand for generic drugs should continue to grow in importance over time. Branded drugs only have a finite patent life, which means the development pathway for generic drug developers is constantly being replenished. Also, with lawmakers considering a hardline stance against high drug prices, generic drug look like a potential industry savior (at least in the United States).
With Wall Street expecting Akorn to grow its top line by a high single-digit percentage throughout the remainder of the decade, and the company valued at a mere eight times forward earnings, I would consider using this recent accounting weakness as an opportunity to dip your toes into the water.
Ice, Ice, baby!
Fear not -- I will not be busting out any (more) Vanilla Ice lyrics today. However, it is a perfect segue into our next value stock in the financial sector, Intercontinental Exchange (NYSE:ICE).
One of the smartest ways investors might consider taking advantage of the growing ease of trading securities around the globe is by investing in a company like Intercontinental Exchange that happens to own global exchanges and clearing houses, and is also a provider of data and listing services. Its latest quarter featured $875 million in revenue, a 9% increase from the prior-year period, led by a 35% year-over-year increase in listings revenue. Operating margin was also a robust 48%.
How has something branded as ICE become so hot? Acquisitions have been the company's primary mode of growth. In 2012, Intercontinental Exchange announced that it would be purchasing the New York Stock Exchange for $8.2 billion; in 2014 it acquired SuperDerivatives for $350 million; and just this past October it announced a $5.2 billion acquisition of Interactive Data Holdings. The deal for IDC is aimed at pumping up ICE's data services business, which also happens to be its fastest-growing segment. It's also possible the London Stock Exchange could eventually be in ICE's sights.
A final point to keep in mind is that while Intercontinental Exchange faces competitors in financial data services, clearing house trades, and exchange operation, the barrier-to-entry is pretty high, and those competitors are few and far between. With few choices, ICE's dominance affords it some luxuries when it comes to pricing its services and solutions that ensures it remains healthfully profitable.
Now sporting a reasonably low forward P/E of 15, this rapidly growing financial services giant could be worth a closer examination.
This "walking dead" value stock could be ready to rise
To round out our series of terrible puns this week, I'd suggest turning your attention to AMC Networks (NASDAQ:AMCX), which owns and operates five principle cable television brands: AMC, IFC, BBC America, We tv, and SundanceTV.
As you might imagine, cable television brands are facing extensive pressure in recent years with consumers simply cutting their cord from traditional cable providers and getting their content through a streaming service. This move could not only hurt ratings, but it may put downward pressure on advertising rates, resulting in bad news for cable networks.
As for AMC Networks, this doesn't appear to be a concern. As the company noted in its fourth-quarter earnings release, original programming is one area where it believes it has an edge. Three original series premiered on AMC in 2015, including Fear the Walking Dead, Better Call Saul, and Into the Badlands, all of which the company states broke ratings records. Considering the success of prior series such as The Walking Dead and Breaking Bad, Fear the Walking Dead, and Better Call Saul could prove very profitable spin-offs for AMC Networks.
Secondly, AMC Networks has an opportunity for long-tail growth in international markets where network competition may not be as intense as in the United States, and where streaming may not be as pervasive. International revenue currently makes up less than a fifth of its current revenue, so there's still plenty of work, and perhaps even acquisitions, to be made on this front.
The company's fourth-quarter results also suggest that its pricing power remains strong. Fourth quarter revenue growth of 13.4% was primarily led by advertising growth at AMC. It also benefited from improved distribution revenue on a year-over-year basis.
Valued at just 10 times forward earnings, and having implemented a stock repurchase program totaling up to $500 million earlier this month, AMC Networks may be just what value investors are looking for.
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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