Volatility is back. The markets slumped badly at the end of last
week and have rallied considerably higher thus far this week. From
to tepid economic reports to deepening troubles in Europe, there's
a whole lot of push and pull going on right now.
Consider this fact: The S&P 500 has fallen at least 1% on four
occasions this month alone. It happened only once in March and not
even once in February. That's actually good news for value
investors: each sell-off has brought a fresh list of bargains, as
the list of 52-week lows starts to grow larger.
This week, I've come across a handful of solid long-term businesses
that have touched fresh 52-week lows in the past few trading
sessions. I've been tracking these companies over the years,
awaiting the moments when they temporarily fall out of favor.
They're in the doghouse once again, and now look inexpensive in the
context of their long-term track record.
1. Barrick Gold (NYSE:
This leading gold miner has bounced around between $45 and $55 for
much of the past two years, but has recently fallen below support
levels. My colleague Tim Begany wisely suggested investors dump
back in November
, although the sell-off now looks complete. This stock is now
looking a heck of a lot more appealing.
Begany correctly noted that Barrick's costs were spiraling, but
it's even worse than he thought. At the time he wrote his article,
Barrick's cash cost per ounce of gold was expected to have reached
an all-time high of $482 in the fourth quarter, but the figure
actually climbed to $505. Adding insult, management conceded that
cash costs per ounce in 2012 would rise to at least $520 and
perhaps as high as $560. (The company also mines copper at about $2
Yet with gold trading at around $1,640, Barrick is still generating
solid profits: The company is likely to earn about $5 a share this
year and $6 a share in 2013, assuming stable gold prices. Costs
will remain a problem, but Barrick remains on track to boost output
as its key mines hit their stride, which explains the rising
earnings per share (
. A fairly high level of
cash flow per share
will be roughly 20% to 30% higher in each of those years.
Merrill Lynch rates
a "Buy," with a $64
-- more than 60% above current levels using gold at $1,400 over the
next five years in its core assumptions. So gold could pull back
$200 from current levels without impacting that target.
2. Polycom (Nasdaq:
This provider of audio and video-conferencing systems has felt the
pain of rising competition and a slowing global
, pushing its stock down from $33 last summer to a recent $12.
Investors are smarting over the fact that a former steady grower is
likely to see sales flatten at around $1.5 billion this year.
pressures will likely cause
to drop more than 20% to around $0.95, perhaps before
rebounding at a double-digit pace again in 2013 -- if European and
Asian demand start to bounce back.
As is the case with any company facing near-term headwinds, it may
be several quarters before sales -- and the stock price -- start to
rebound. That said, this former growth stock now looks like a deep
-- shares sport a single-digit P/E multiple if you back out the
$3.42 a share in cash.
It's not as if this business is in trouble. Polycom still managed
to ink more than 600 deals in the first quarter worth at least
$100,000 each. A number of companies are installing these high-tech
pricey solutions in order to cut down on business travel (though a
large number of companies are also deferring this non-essential
Cisco Systems (Nasdaq:
is taking some
, thanks to a broader bundled solution, but the entire industry is
expanding fast enough to turn this company back into a growth stock
later this year.
3. Modine Manufacturing (NYSE:
This maker of heating and cooling systems for trucks, farm
equipment, construction equipment and buildings is feeling the pain
of a slowdown in Europe. Sales likely grew only 10% in the
ended last month (to around $1.6 billion), and will likely grow at
just half that pace in the fiscal year that just began. Just a few
quarters ago, management had noted that a range of streamlining
initiatives could push EPS up to $1 in the fiscal year just ended,
but the renewed sales weakness will likely shave that goal by about
Analysts expect EPS to finally move higher in the current fiscal
year (April 2013) to roughly $1.15, but I'm guessing that's too
optimistic. A $0.90 a share
is looking increasingly likely, and true earnings strength won't
likely be in evidence until the fiscal year that begins next April.
Still, this is an awfully cheap stock, trading just below
and for around seven times what profits will look like in a more
stable economic environment. Insiders jumped the gun, though,
buying into the stock last summer and winter at around $10 a share,
and may look to wade back in again now that shares are below $8.
Risks to Consider:
Stocks hitting 52-week lows represent better values than they
had before, but can often take several quarters or more to reverse
Action to Take -->
In an uncertain
, it pays to focus on stocks that don't have a high degree of
expectations already embedded in their valuations. That appears to
be the case with these three stocks, all of which have slumped
badly in recent months.
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of CSCO in one or more if its "real money" portfolios.
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