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3 Value Stocks Near 52-Week Lows Worth Buying

By Sean Williams - Apr 29, 2016 at 11:21AM

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These three value stocks may be down, but they're far from out.

Image source: Flickr user Jim Makos.

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.

Feast on this
Keep in mind that the nature of this weekly article isn't to call a bottom in a stock so much as it is to bring attention to companies who've fallen off the wagon and which could be primed for solid long-term gains. Thus our first value stock this week, Agrium (NYSE: AGU), may not show much life in 2016, but I suspect it'll be worth considerably more over the long run than where it is now.

The biggest issue for Agrium at the moment is pricing. Fertilizer prices have come under pressure as a multi-year expansion in crop demand has led to an oversupply of certain grains and oilseeds. With supply and demand out of equilibrium, Agrium and its peers have had to turn to cost-cutting and production controls to maintain their margins.

Image source: Agrium.

However, Agrium has a number of factors that make it appear attractive over the long run. To begin with, global food demand is only set to rise as the world's population increases. We only have a finite amount of land on the planet, meaning improving crop yields will increase with importance over time. This pretty much places fertilizer companies in the "basic-need" category even if commodity prices don't currently reflect it.

Another key point is that the struggles fertilizer companies are facing with choppy orders of late have more to do with weather patterns than adverse industry fundamentals. Warmer-than-expected weather in the U.S. delayed ammonia applications, and then a wet period following the warm start hindering the application of nutrients. Although you can't factor weather out of the equation with fertilizer companies, you can take a step back and expect normal weather patterns to, at some point, right the ship for the industry.

Agrium has also done a good job of rewarding its investors. In early 2015 Agrium announced plans to pay out 40%-50% of its free cash flow in dividends to investors, up from a prior forecast of 25%-35%. At the moment, shareholders of Agrium are enjoying a hefty 4.1% yield.

Currently valued at just 12 times forward earnings, Agrium could be an investment you could feast on for years to come.

Tweet to beat
Next up, I'd suggest that value stock investors consider high-growth social media giant Twitter (TWTR 6.35%).

Twitter reported its first-quarter results earlier this week, and to be blunt Wall Street wasn't all too impressed. During the first quarter, Twitter delivered $595 million in revenue, a 36% increase from the prior-year period, and generated a $0.15 adjusted profit per share. In terms of EPS, Twitter trounced Wall Street's expectations by 50%, but analysts had been modeling $608 million in quarterly revenue. This revenue miss, along with tepid Q2 guidance, had investors heading for the exit.

Image source: Twitter. 

But I believe there are a number of reasons why this plunge in Twitter's stock could be the perfect time to dip your toes into the water.

Membership is a strong selling point for Twitter. Even though its monthly active members only grew by 3% year-over-year to approximately 310 million, we're talking about highly valuable impressions that advertisers want a piece of. As evidence, we only need to look at how a 3% increase in monthly active users translated into a 36% increase in revenue. Twitter may not be growing its member base like wildfire anymore, but it can still command substantial advertising pricing power. Not to mention that nearly six in seven users are interfacing with Twitter via their mobile device.

Second, Twitter has plenty of innovations within its pipeline that could be big value creators for investors. Twitter recently enhanced its timeline to feature more current events and boost engagement via replies and retweets. Changes in the way new member sign up for a Twitter account has boosted the amount of follows that are initially registered. Twitter's Q1 report also notes that it's been focused on providing a better experience for its enterprise customer, providing them with new features to reply to public tweets, as well as survey customers about their business via a direct message.

Fundamentally, Twitter's forward P/E over 21 may not look as appealing, but its PEG ratio of less than 0.7 implies long-term upside relative to its growth potential. It also doesn't hurt that Twitter ended the quarter with $3.6 billion in cash and cash equivalents. This is a company value investors would be wise to have on their radars.

Image source: Ciena.

More fiber in your diet
For our last selection this week, I'd suggest sticking with the technology sector and digging deeper into networking equipment supplier Ciena (CIEN 2.00%).

The biggest concern investors regularly have with Ciena is that it operates a cyclical business. Ciena requires an expansive economy and free-spending enterprises to drive its business. Considering Ciena faces a lot of industrywide competition, pricing pressures can get the best of Ciena from time to time.

These concerns aside, I'd opine that Ciena has considerably more upside potential than downside over the long term. The biggest catalyst for Ciena is likely to be enterprise data center expansion, especially within the telecom industry. As businesses move into the cloud, the reliance on data and transmission is expected to grow. This is the perfect segue for Ciena to market its networking equipment products designed to accelerate and improve service quality. Deals with industry giants such as Vodafone in 2013 to expand and improve Internet speed for Vodafone's customers are evidence of Ciena's innovation and success. 

Image source: Ciena.

Ciena could also benefit from consolidation within the network equipment industry. Earlier this month Corning announced that it was gobbling up fiber-optic network equipment provider Alliance Fiber Optic Products for $305 million. Alliance Fiber Optic and Ciena operate in a similar niche, and slowly but surely we've seen most small- and midcap networking equipment providers gobbled up by larger competitors since the last recession. Value investors shouldn't buy Ciena with the expectation of a buyout, but the industry trend suggests that a buyout offer at some point in the future could be likely.

Fundamentally, Ciena is valued at just 10 times forward profits and is trading at a PEG that's below 0.8, suggesting there could be significant long-term upside to come.

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Stocks Mentioned

Ciena Corporation Stock Quote
Ciena Corporation
$50.57 (2.00%) $0.99
Twitter, Inc. Stock Quote
Twitter, Inc.
$39.52 (6.35%) $2.36

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