The market's rough patch has recently knocked many stocks from
their 52-week highs. Even the companies that are performing well
are drifting ever lower, but the companies that have dared to
stumble this spring are really taking a beating. One false move and
they wake up to a share price 30% to 40% lower than it was
when spring began.
Retail stocks have taken it especially hard, many of them dropping
15% to 20% in recent weeks. In fact, the retailers in the table
below have dropped 30% or more since the beginning of spring.
Companies such as
Big 5 Sporting Goods (Nasdaq:
CitiT rends Inc. (Nasdaq:
built impressive growth platforms before the downturn hit. Now that
have been so deeply punished, they're worth a closer look.
Looking beyond retail, a host of other stocks posted their biggest
drops in several years. I've recently written about
Exide Technologies (Nasdaq:
you can read about here
. I also discussed
A123 Systems (Nasdaq; AONE)
, which has recently been
upgraded to "buy"
by Goldman Sachs and JP Morgan. Lastly, I suggested
MEMC Electronic Materials (NYSE:
may have been oversold
. There are a few other stocks whose shares have dropped 30% to 40%
in the past 13 weeks.
Take a look at the table below...
Among these names, I've identified a pair of deeply-discounted
stocks that are looking forward to the official end of spring in
hopes to see sunnier days in the upcoming quarter.
Clayton Williams Energy (Nasdaq:
Shares of this oil and gas driller have been on a wild ride,
surging from $40 in June 2010 to more than $100 in the end of March
2011 before plunging back below $60 on June 15. Shares were driven
higher as the driller was able to expand output just when prices
for crude oil were surging. This helped
cash flow per share
to rise from about $8 in 2009 to $17 in 2010. This year, this
figure is expected to approach $20 in 2011 and $24 in 2012.
Trouble is, the company may need to raise more money (and dilute
existing shareholders) to fulfill its ambitious expansion plans and
meet those targets. In a recent press release, Clayton Williams
noted it intends to spend nearly $500 million in 2011 to fulfill
its expansion plans. The company recently issued $50 million in new
bonds that are due in 2017, while retiring $81 million in bonds
that would have come due in 2013. So it's unclear from where the
rest of its needed funds will come.
Even if Clayton Williams is unable to fund an expansion and meet
those lofty targets, it still controls an impressive set of proven
oil fields worth $68 a share according to analysts at Imperial
Capital. This is roughly 20% above the current share price. If you
look at it another way, the shares trade for just four items
, on an
basis. That's roughly 20% to 30% below peer multiples.
With shares in decline, management may need to adjust expansion
plans and focus their efforts on existing drilling activities. This
means the growth plans for 2012 and 2013 may not be met, but it
would allow the company to build cash reserves and restore investor
confidence in the company's projected financial strength. One thing
is for sure: shares have more than discounted potential
concerns and appear quite inexpensive below $60.
This is a company that has always been a bit ahead of its time. Its
machines can create 3-D objects used as design prototypes or spare
parts replacements in a wide number of fields. The technology it
uses has been quite impressive, but customer growth in the past few
years has not. Sales peaked at $124 million in 2008 (even though
many thought Stratasys would have far higher sales by now back when
the company first made the rounds on Wall Street in the 1990s).
Yet toward the end of 2010, Stratasys finally started to click when
sales growth accelerated and a slow-starting
started to blossom. Shares rose from about $10 in the summer of
2008 to $55 on April 27 this year. Since then, it's been a downhill
slide and shares are back to a little more than $30.
Why the pullback? Blame it on HP. The tech giant has reportedly
been pleased with initial sales of rebranded 3-D printers in five
European countries, but has yet to expand the relationship. The
relationship had been seen as a panacea for Stratasys, whose
limited sales force has always been an impediment to growth.
Even without an expansion in the HP relationship, Stratasys is
indeed on the upswing. The company never earned more than $0.66 a
share in any given year, but now appears on track to earn almost $1
a share this year and perhaps $1.25 in 2012 on 20%-plus sales
growth. The recent pullback puts the forward multiple at about 25
-- not cheap, but down from where it was when spring began.
In addition, HP is still likely to deepen its partnership with
Stratasys to include more countries, with a potential announcement
coming later this summer. It increasingly looks like any HP
expansion will provide a solid lift to Stratasys' sales, but it may
not be the game-changer relationship many had hoped for when the
stock ran up this past winter. Nevertheless, the stock's pullback
allows investors a second shot at an appealing (if long overdue)
Action to Take -->
Summer begins on June 21, and these two companies will welcome the
change of seasons. In some ways, the recent bruising of shares
appears overdone, so a summer rebound may be in the offing. For
investors who like to take advantage of undervalued situations,
these two stocks seem like a promising play to start the new
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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