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.
A value stock that won't be "Stifel-ed" for long
As always, we'll start the week with a terrible pun -- but I promise to make up for it by offering up some intriguing value stock ideas. This week I'm suggesting value investors consider giving their attention to financial services company Stifel Financial (NYSE:SF).
The biggest issue currently facing Stifel has been an adverse global market environment, which has stymied equity capital raising opportunities for its clients. For the full-year 2015, equity capital raising revenue dropped 18%, with an even more pronounced decline in advisory fee revenue of 29%. But Stifel's diverse service portfolio, and a few key acquisitions, could help turn those frowns upside down.
Last year was big for Stifel in terms of M&A, with the company acquiring Sterne Agee for $150 million in order to boost its broker business. The deal wound up increasing its staff of financial advisors and investment brokers by about a third, which appears to be a smart move with the U.S. stock market looking toppy (i.e., investment advisors may prove more important than ever). It also purchased Barclays' Wealth and Investment Management business in the U.S. in order to grow its presence in managing the assets of high net worth individuals. The deal added $56 billion in client assets and a portfolio of $1.5 billion worth of client loans. These acquisitions give Stifel a way to continue to grow its top-line, while also improving its core service offerings.
Additionally, there's a silver lining to the macro problems facing the company. A volatile market environment may have hurt advisory fees and equity capital raises, but fixed income capital raising revenue was strong, as were its brokerage revenues when taken as a whole. Institutional fixed-income brokerage revenue soared 66% in Q4 compared to the previous year, as noted in Stifel's year-end results. This ability to hedge its businesses against certain adverse market conditions should help minimize any near-term downside.
Following its recent weakness, Stifel is now trading at less than 10 times next year's earnings, and is likely to grow its adjusted EPS by a mid-to-high single-digit percentage throughout the remainder of the decade. To me, this appears to be an intriguing value worth a closer look.
I have the power!
Yes, that is a cheesy allusion to He-Man, and no, this value pick will have nothing to do with the entertainment industry. Instead, we're looking at solar power applications company Canadian Solar (NASDAQ:CSIQ), which I'd encourage you to consider an attractive value stock.
The biggest enemy of solar stocks at the moment is uncertainty, and Canadian Solar investors are certainly no stranger to that. The company's fourth-quarter press release guided for $645 million to $695 million in revenue during the first quarter of 2016. The problem? Despite trouncing its Q4 production estimates, its Q1 2016 revenue forecast is more than $100 million below estimates. Also, Canadian Solar still isn't sure whether or not it wants to form a yieldco to manage its wind and solar farm assets. The problem with yieldcos is that the value of wind and solar farms has risen, which means less profitability to unlock for shareholders now if Canadian Solar were to create one.
Nonetheless, Canadian Solar has a handful of attributes that could make it an excellent long-term value investment. For example, skeptics might point to Canadian Solar's foreign exposure as a weakness. Foreign currency and political risk could indeed play a role and stymie very near-term returns from time-to-time. However, Asian markets, India, and parts of Europe remain hotbeds of future solar growth, and that's where Canadian Solar has set itself up to succeed. While the ride may be a bit bumpier, it may have one of the most attractive long-term growth outlooks since it's focused on countries that could eventually dwarf the United States' investments in solar.
Also, choice is a big selling point with Canadian Solar. Even though a yieldco has been discussed for more than a year now, Canadian Solar could have the option of packaging its wind and solar farms in an asset sale. This could prove to be a smarter move that helps Canadian Solar pay down some of its debt, improving its value substantially in the eyes of investors.
At a minuscule six times forward earnings, Canadian Solar appears priced to struggle. Yet its inroads in Asia, India, and elsewhere would suggest that it's well-positioned to thrive over the long run. I suspect this value stock could have what it takes to power your portfolio higher.
This value stock could be a real cash "cow"
One of the easiest ways for value stock investors to locate great companies is by focusing on trends that are expected to persist for many years or decades. One such company riding a long-term growth trend is Phibro Animal Health (NASDAQ:PAHC).
In years past, farmers would ensure the health of their livestock by using antibiotics. However, farmers and large-scale cattle producers have been moving away from antibiotics and toward nutritional specialty products. Phibro Animal Health is a provider of a broad range of nutritional and mineral products that cattle, swine, poultry, and other forms of livestock use to stay healthy. Thus, as Phibro's product portfolio is growing in importance in the eyes of farmers, presumably so is its pricing power.
By a similar token, Phibro Animal Health has another trend on its side: a growing global population. There's only a finite amount of land on this Earth, which means livestock yields need to be improved as much as possible in order to feed as many people as possible. As the global population continues to rise, the importance of nutritional specialty products could increase, as well as the focus on livestock yield.
The company has also been active on the acquisition front in order to diversify its product offerings. In January, Phibro announced the acquisition of MVP Laboratories, a livestock vaccine and vaccine adjuvant producer that should help boost its share in the swine industry.
All told, between 2011 and 2015 Phibro's gross margins have improved by nearly eight percentage points to 31.6%, and its operating income has more than doubled despite a growth rate that's averaged in the mid-single-digits. Now valued at 15 times forward earnings, this animal health company could be just the cash cow that value investors ordered.
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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