Just as we often examine companies that may be
rising past their fair values, we can also find companies
trading at what may be bargain prices. While many investors would
rather have nothing to do with stocks wallowing at 52-week lows,
I think it makes a lot of sense to determine whether the market
has overreacted to a company's bad news, just as we often do when
the market reacts to good news.
Here's a look at three fallen angels trading near their
52-week lows that could be worth buying.
An organic panic
Given how organic and natural food producer
Whole Foods Market
has traded since last October, you'd think the business model
blew up. Shares have dropped by nearly 40% as a mixture of
and higher food costs have weighed on the usually sure-footed
Source: David Shankbone via Wikimedia Commons.
However, after missing Wall Street's earnings-per-share
estimates in its two previous quarters, Whole Foods got back to
business in the second quarter, reporting a total sales increase
of 10% to a record $3.4 billion as comparable-store sales rose by
3.9%. The company noted that both transactions and checkout
totals improved, which ultimately helped boost comps.
Though competition remains a concern for Whole Foods Market, I
believe it has the tools necessary to continue growing at a
high-single-digit percentage, if not better.
For one, it's not as if consumers have given up on organic and
natural foods. In fact, as you walk around your local
supermarkets today, you're likely to find that the selection of
organic and natural products is
as big as ever
. Consumer groups continue to push for more transparent food
group labeling, and as this movement gains momentum, the consumer
demand for large-scale organic grocers should keep Whole
Foods' growth on track.
Source: Ines Hegedus-Garcia via
Second, don't forget that while smaller organic grocery chains
might be growing more quickly than Whole Foods, this company's
size gives it the ability to negotiate better deals for its
produce and other products. Ultimately, I expect this will allow
Whole Foods to deliver more impressive margins than its peers
over the long run.
Finally, Whole Foods is also a champion of employee rights and
does well by its shareholders. Whole Foods ensures that its
executives don't take home exorbitant pay packages relative to
its in-store employees, and it has been regularly buying back its
own stock and offering investors what currently amounts to a 1.3%
dividend yield. This gives Whole Foods a positive image, which
can go a long way toward improving customer traffic.
As both a growth and value stock, Whole Foods certainly looks
worthy of a deeper dive.
Lower and lower it goes; where
's bottom is, nobody knows.
Shares of Web.com Group, a supplier of Internet-based
solutions such as hosting, website design and management, and
search engine optimization for small businesses, have gone cliff
diving following the company's last two earnings reports and are
off about 50% from their all-time high set in March.
In the second quarter, the company delivered $144.7 million in
revenue compared to Wall Street's consensus forecast of $146.9
million. This top-line miss, compounded by reduced full-year EPS
estimates from Wall Street and the company's remaining $513
million in net debt, have given traders enough reason to believe
Web.com's best days are in the rearview mirror.
Source: Web.com Group.
However, I see this dip as a potentially attractive buying
Dissecting Web.com Group's earnings report a bit further
yields some nice surprises. Quarterly revenue, while off the
mark, still rose by 10% year over year. More important, average
revenue per user rose $0.14 from the sequential first quarter and
$0.80 year over year, to $14.89. That might not sound like a lot,
but it implies that Web.com is retaining strong pricing power
and, based on its net additions during the quarter, not chasing
away clients with its pricing or quality of service.
I also wouldn't underestimate the niche space in which Web.com
operates. Most small businesses really aren't aware of how to
increase the viewership of their product or service. Web.com's
personalized services, which on the high end will run about $276
per year, are relatively inexpensive and can practically walk a
new business owner through the process of targeting his or her
audience via online and mobile Web designs, as well as search
engine optimization. By comparison,
offers similar cloud-based business optimization tools, but its
at $360 per year.
Even with slightly reduced growth expectations and sizable
debt levels, I'd say Web.com is a potential steal at just seven
times forward earnings. Given its long-term growth rate of about
8%, which would place the company at a PEG ratio below one, I
suggest investors give this value stock a closer look.
Bursting with paw-tential
No stock goes straight up, but between 2009 and 2014 it was a
steep uphill ride for stakeholders in animal health products
MWI Veterinary Supply
, who saw their shares rise in value by more than 700%. But all
good things must end, and shares of the company have dipped by
more than 20% from their all-time high set earlier this year.
As with Web.com, the culprit was a weak second-quarter
earnings report in May that saw the company produce $1.32 in EPS,
which was $0.05 below what Wall Street anticipated. While
operating income increased in the second quarter, gross margin
fell by 70 basis points. For a company that had run higher by
more than 700%, investors were clearly expecting more.
The good news is that I fully expect MWI to deliver more to
patient value investors who are primed for a long-term hold. The
way I see it, there are both company-specific and macroeconomic
reasons why MWI Veterinary Supply can outperform.
Source: William Warby via
MWI's purchase of IVESCO, which closed in November of last
year, should help expose the company to a broader base of
companion animal and production animal customers. Having a
broader product portfolio than before the buyout should allow for
substantially better pricing power and give veterinary practices
and commercial animal producers a reason to stay loyal to
On a larger scale, both the companion and commercial markets
are likely to see increasing demand for all supplies, ranging
from food to medicine.
On the companion side of the market, more U.S. households own
a pet now than at any time previously. In 1988, according to the
American Pet Products Association, just 56% of all U.S.
households owned a pet. As of 2013-2014, that figure had jumped
to 68%, with 2013 pet expenditures totaling a whopping $55.72
billion in the nation. Put simply, people will do anything for
their "family member," and that means spending quite a bit to
keep them healthy. On the commercial side of the business, a
growing global population bodes well that the demand for vaccines
will remain high.
At 22 times forward earnings, MWI Veterinary Supply's "value
stock" status may look questionable, but having a long-term
projected growth rate in the double-digits, coupled with these
aforementioned pet expenditures, could lead to decades of success
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3 Value Stocks You Should Consider
originally appeared on Fool.com.
John Mackey, co-CEO of Whole Foods Market, is a member of The
Motley Fool's board of directors.
has no material interest in any companies mentioned in this
article. You can follow him on CAPS under the screen name
, track every pick he makes under the screen name
, and check him out on Twitter, where he goes by the
The Motley Fool owns shares of, and recommends Whole Foods
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