3 Value Stocks Near 52-Week Lows Worth Buying

While many companies are rising past their fair values, others are trading at potential bargain prices. Although many investors would rather have nothing to do with stocks wallowing at 52-week lows, it makes sense to see 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 gusher of an opportunity
It may have been two weeks since we last looked at value stocks near their 52-week lows worth buying, but the story hasn't changed much: oil drillers and service providers remain very inexpensive. That's why I'm leading off this week with the current No. 2 company in the world by market valuation, ExxonMobil (XOM 1.15%).

Source: ExxonMobil. 

Is pessimism within the oil sector and ExxonMobil warranted? Absolutely. You don't witness a 55% drop in oil prices without there being some genuinely negative repercussions for energy stocks. ExxonMobil, for instance, is forecast to see its revenue decline by (and I really hope you're sitting down for this) $169 billion year-over-year to $243 billion, or a plunge of 41%. This collapse in oil prices, which has been driven by a glut of oil in U.S. terminals and refineries, as well as the insistence of Saudi Arabia that it has no plans to cut production, could cause ExxonMobil's profits to fall by more than half in 2015.

But, as I've been stating for weeks, this weakness in oil prices is actually a reason to go on the offensive rather than retreat to the hills.

To begin with, the long-term energy outlook favors big drillers like ExxonMobil. Consider the source a bit biased, but ExxonMobil released its 2040 Energy Outlook in December, highlighting that energy demand will be 35% higher in 2040 than it is in 2015. Furthermore, carbon-based fuels will continue to meet 75% of the world's energy demands in 2040. In all, global liquids supply is expected to increase by 45%, with North American natural gas demand anticipated to climb by 75%. With a strong presence in the North American shale market, this bodes well for ExxonMobil's long-term growth prospects. It also signals that any drop in oil prices is likely to be short-lived.

Source: ExxonMobil 2040 Energy Outlook.

Also, investors should keep in mind the word "integrated" when describing ExxonMobil. With refining and midstream capacity at its disposal, ExxonMobil is one of few vertically integrated oil companies in the world. This means that when commodities aren't helping out its upstream businesses it can somewhat hedge its profitability with its pipeline and refining segments.

Given its strong cash flow that results in a relatively low debt-to-equity ratio among integrated oil companies, and a P/E that translates to less than 12 based on Wall Street's projected 2018 EPS, I believe this is a value stock that should be given serious consideration.

A little portfolio insurance
One of the smartest ways to find value in a volatile market is to look toward the typically "boring" sectors, such as insurance. That's why specialty insurer Assurant (AIZ 1.72%) has my full and undivided attention.

In its recently reported fourth-quarter results Assurant plain and simple missed the mark. For the quarter it delivered an adjusted $0.87 in EPS, below what Wall Street had been expecting. The company, which provides insurance for everything from mobile phones to individual and group health insurance, saw its profits fall year-over-year because of higher health insurance claims and what Assurant referred to as "anticipated normalization of lender-placed insurance" at its specialty property segment. 

In short, it was far from a banner quarter or year for the company, and the normally non-volatile stock plunged notably on the news. But, the good news with insurers is that a turnaround is almost always just a few quarters out.

Source: Assurant.

There are a few notable catalysts working in Assurant's favor. First, I'd anticipate that its weakened health segment, which experienced higher morbidities and payouts than initially forecast from the Affordable Care Act, will see stark improvements in 2015. Assurant made the move to expand headfirst into the individual market in 2015, and the enrollment data would suggest that a good portion of enrollees were healthier young adults. These enrollees should help improve Assurant's medical loss ratio and boost its profitability.

Also, the insurance business itself is designed to be profitable. Insurers can generate excess premiums on an as-needed basis when catastrophes hit or when cash outflows exceed revenue from new policies underwritten. The justification for boosting prices is simple: so the insurer can comfortably take care of its members when a claim is filed. But, insurers can still raise prices even when claims are down and use the inevitability of catastrophes as justification for the hike. Either way, if margins are down an insurer is a mere price hike or two away from turning things around.

Finally, insurers are set to get a nice boost when the Federal Reserve decides to raise the federal funds target rate. Because insurers invest their enormous sum of premium money throughout the years in safe time deposits like CDs which are interest rate sensitive, a boost in lending rates is going to bode well for Assurant's investment income segment.

Boasting a forward P/E of just nine and a reasonable 1.8% dividend yield, Assurant is a value stock that should be on your radar.

A basket of goodies
We'll end this week exactly how we began it, with a value energy stock to buy -- but with a twist.

If I haven't made my feelings about the energy sector crystal clear, I believe that this recent slump in oil prices is an incredible opportunity for long-term investors to get in on a growing energy demand opportunity. However, I also understand that some investors are terrified of the falling knife nature of commodity prices at the moment. This introduces a lot of emotion and volatility in energy stock prices that otherwise normally aren't there.

This is why I'd suggest value investors consider spreading their risk out by purchasing the Energy Select Sector SPDR ETF (XLE 1.20%). "Why an ETF?" you ask? ETFs spread your risk out of purchasing just a single stock, helping to minimize volatility and prospective downside.

Source: ExxonMobil.

The Energy Select Sector ETF is comprised of 43 oil & gas and service companies that give investors a direct way to benefit from a long-term increase in oil prices. Not surprisingly, ExxonMobil and Chevron make up more than a quarter of total assets, but the end result of having these heavyweights in this ETF is strong cash flow, resulting in a current yield of 2.6%.

Further, the gross expense ratio of the XLE (largely due to its huge size) is just 0.15%, making it one of the lowest cost ETFs you can consider buying.

Looking ahead, profit growth is expected to average 5.6% over the next three-to-five years based on SPDR's home page, along with an average return on equity of almost 13%. I believe it's just a matter of time before commodity prices rebound, giving investors a good opportunity to lock in this valuable basket of goodies for the long haul.