This it truly turning out to be a summer of discontent. The high
heat that is baking much of the nation has led to the thought of
vacations sitting by the air conditioner. Turning on the computer
gives little respite for active investors. After a tough second
quarter, the third quarter is looking problematic as well. Fresh
troubles in Europe, coupled with a tepid U.S.earnings season has
left many to conclude that the summer doldrums may take stocks yet
lower in coming weeks of July and August.
Still, as we grind lower, you need to keep close tabs on
themarket . Fresh bargains are emerging and could have significant
upside later this year -- if the market pulls off yet another
fourth-quarter rebound -- as was the case in 2010 and again in
2011. There are ample areas to find value, though an especially
fertile one can be found among stocks making multi-year lows.
Broadly speaking, these companies are having a tough 2012, but
their stock prices have hit an even rougher patch, skidding to
levels that are far too low. I've been looking at dozens of stocks
making fresh multi-year lows and here are three that look ripe for
1. GameStop (NYSE:
I've been quitebearish on this video games retailer for quite some
time. In October 2011, withshares trading at around $26, I
it actually looked reasonably-priced in the context of various
valuation measures, but that investors were under-estimating the
headwinds in place that would erode sales and profits.
The fact that sales growth has now petered out and analysts have
been modestly trimmingprofit forecasts, explains why shares finally
Now, with shares at $16 -- the lowest level since 2005 -- I'm
singing a different tune. Though business conditions remain
challenged, investors have grown suddenly impatient with the whole
industry because there are few hot new gaming titles right now, nor
is there a growth-inducing new gaming platform to spark investor
interest. Indeed gaming stocks such as
Electronic Arts (NYSE:
Take Two Interactive (Nasdaq:
and others are also trading poorly. All look ripe for a rebound
into the fall and winter as new consoles and titles hit the market.
This should bring renewed interest to GameStop, which is now
The console upgrade cycle has always been key for this sector.
This fall, Nintendo will roll out the next version of its popular
Wii platform. And looking ahead to 2013, we'll get upgrades to the
. GameStop's management has also been working to move past the
console end of the gaming market, pouring a lot of resources into
the digital-download market. At best, those moves are likely
to keep sales from falling further. GameStop looks likely headed
for an expected period of annual sales in the $9 to $10 billion
Still, this is a highly profitable company, even in the face of
anemic sales growth. In fiscal 2011, GameStop generated $450
million infree cash flow , which helped the company pay off its
debt and buy back more than $300 million in stock. The company has
bought back more than $100 million in stock as of July, 2012, with
another $450 million remaining on a current buyback plan.Shares
outstanding are on track to fall from 168 million in fiscal 2009 to
around 134 million by the end of fiscal 2012. In that time, the
company has also retired $545 million in debt.
With shares trading for less than six times projected 2013
profits in July, a newly debt-freebalance sheet and a
fast-shrinking share count, value investors can find plenty to like
in this lagging stock.
2. Imation (NYSE:
This is a "free" stock. This media storage company is valued at
$205 million but has $216 million in cash. It also has nearly $800
million in other assets, no debt and tangiblebook value of $371
million. Shares hit a 15-year low on Monday, July 23, and are
now too cheap to ignore. Management would be wise to
aggressively buy back a lot of stock while shares trade far below
tangible book value.
3. GM (NYSE:
Shares of this auto maker slipped below $19 in early Monday trading
-- for the first time since they began trading again in late 2010.
That's not the outcome expected when the shares first hit the
market and were making a quick run for the $40 mark. Notably, GM is
a much stronger company than at any time in recent memory. The
balance sheet is extremely strong and after a long drought, the new
product cycle is kicking in, headlined by a major new truck launch.
The new management team concedes there's more work to be done in
terms of streamliningoverhead , and problems in Europe are surely
keeping them busy as well.
It's important to note thatearnings power is being constrained,
and will barely top $3 a share this year, but could hit $5 by
mid-decade. The move under $20 makes this a compelling opportunity
for those willing to ride out the near-term storms.
Risks to Consider
: These stocks won't rally until the market stops falling. Even
then, patience will be required as near-term quarterly results
could be tepid in this sloweconomy .
Action to Take -->
All three of these stocks sport very strong balance sheets, though
there shares trade at multi-year lows. It's only a matter of time
before value investors seize on the disconnect.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of MSFT in one or more if its "real money" portfolios.