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.
Big value in Big Pharma
This week I figured we'd start out with a bang by examining one of the largest drug developers on the planet, Pfizer (NYSE:PFE).
Since the beginning of the decade Pfizer's had a bit of a rough go. Its top-selling drug, LDL-cholesterol fighter Lipitor, lost patent protection, and it's witnessed other popular products in its pipeline exposed to generic competition. Over the course of five years its top-line revenue has been cut by nearly $19 billion.
But it would also appear as if the worst has passed, with Pfizer's operating sales increasing on a year-over-year basis in each quarter of fiscal 2015. Pfizer is now beginning to see substantial benefits from its new product innovations. For instance, the approval of breast cancer drug Ibrance is expected to yield blockbuster results for Pfizer. Despite only finding its way to pharmacy shelves in early February 2015, Ibrance sales wound up totaling an impressive $723 million for the year. Based on its extrapolated Q4 sales of $315 million, Ibrance appears well on its way to hitting blockbuster status in 2016 and pushing its peak potential to north of $3 billion in annual sales.
In addition to Ibrance, growth in the company's pneumococcal vaccine, known as Prevnar 13, has been jaw-dropping. Since becoming a recommended vaccine for elderly adults aged 65 and up by the Centers for Disease Control and Prevention in 2014, sales have exploded higher. With $6.25 billion in full-year sales in 2015, Pfizer's Prevnar family of vaccines are the top-selling vaccines in the world by revenue.
Pfizer's merger with Allergan (NYSE:AGN) could prove game-changing as well. The deal is going to allow the two companies to save around $2 billion in annual cost synergies, of which a good portion will be realized in relocating Pfizer's headquarters to corporate tax-friendly Ireland. Allergan's product portfolio and Pfizer's are also largely different, which means that the combined company should benefit from improved product diversity and, presumably, better margins.
Considering that Pfizer's growth rate is expected to reaccelerate toward the end of the decade, its forward P/E of just 12 may be quite attractive to value investors.
Investing within your community
Next up, I'd suggest value stock investors turn their attention to the information technology industry and dig deeper into Tyler Technologies (NYSE:TYL).
Tyler Technologies, which provides various enterprise software solutions for local governments, such as financial management, court and justice processes, and appraisal management automation, took a recent dive after reporting weaker-than-expected fourth-quarter results. In Q4, Tyler earned an adjusted $22.4 million in net income, or $0.59 per share. By comparison, Wall Street was looking for a profit of $0.65 per share.
Wall Street pummeled Tyler for the miss, but I see a potential value that investors may want to take note of.
Tyler pointed out in its quarterly report that its effective tax rate totaled a whopping 55.9%, up nearly 16% from the prior-year quarter. The exercising of stock options and non-deductible acquisition costs tied to it purchasing New World Systems for $360 million in cash and stock drove its effective tax rate higher. The good news is these are essentially non-recurring tax burdens, and as such the company's tax comparisons should be quite favorable moving forward.
What could arguably be Tyler's best attribute is that its recurring revenue is growing at a rapid pace. Much of what Tyler provides is software-as-a-service, or SaaS. The SaaS model typically makes it difficult and complicated for businesses to switch from one enterprise provider to another, and ongoing software maintenance provides an almost razor-and-blade-like model that generates that highly coveted recurring revenue. In fiscal 2015, recurring revenue grew to $357.5 million, an 18.9% increase over the prior year. More importantly, recurring revenue represented about 60% of Tyler's total revenue.
Tyler's forward P/E of 32 may look a bit daunting, but based on Wall Street's short-sightedness and Tyler's growth prospects (15% to 20% growth per year), I could foresee its P/E dipping into value stock territory sooner than you might think.
This chicken is kickin'
Last, but not least, value investors searching for a good value may want to consider taking a bite out of the wing king Buffalo Wild Wings (NASDAQ:BWLD).
The biggest issue for Buffalo Wild Wings is that it consistently disappoints investors when releasing its quarterly results. The company has missed Wall Street's EPS projections in each of the past five quarters, including the fourth quarter of 2015, when it recorded a $1.32 per share profit. Wall Street had been expecting the company to deliver $1.42 in EPS.
Despite Buffalo Wild Wings' consistent inconsistencies during earnings season, the company has a lot to offer value investors.
For starters, Buffalo Wild Wings is expanding at a blistering pace. The company added 105 restaurants during fiscal 2015, which helped drive its 21.3% restaurant sales growth. In 2016, the company is looking to open right around 100 locations again, with about half of those locations being company-owned. The company's ability to use its operating cash flow to rapidly expand has been instrumental to growing its top- and bottom-line.
Secondly, we're still witnessing predominantly strong same-store sales growth in Buffalo Wild Wings' restaurants. Although same-store sales growth slowed to 1.9% at company-owned restaurants and 0.1% for franchised restaurants during Q4, for the full-year company-owned restaurants delivered 4.2% organic growth, and franchised locations pushed through 2.5% same-store sales growth.
Finally, and this will likely be more of a near-term effect, a number of Buffalo Wild Wings' input costs are down on a year-over-year basis. Prices for poultry are down 3.3% year-over-year according to the U.S. Department of Agriculture's Economic Research Service (ERS). The ERS blames excess chicken broilers remaining on in the U.S. for this downward supply pressure, and expects poultry price inflation to remain tame in 2016.
With a double-digit percentage growth rate, a PEG ratio hovering just above one, and a forward P/E under 20, Buffalo Wild Wings could be just what the value investor needs to satiate their appetite.
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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