The S&P 500 is back near where it was a month ago. A surge
into November has been met by recent profit-taking as we head into
the Thanksgiving holidays. In pullbacks like these, I like to scan
the lists of losing stocks to see if any bargains get uncovered. I
found three, all of which hit 52-week lows this week, and all of
which are still solid long-term plays. The pullback in these names
should set the stage for a much better 2011.
NuVasive (Nasdaq: NUVA)
I recommended this stock two weeks ago as part of a paired trade
Intuitive Surgical (Nasdaq: ISRG)
Read my analysis here
Since then, Intuitive Surgical has fallen roughly -10% while
NuVasive has barely moved. That's logical: in a tough trading
environment, the short end of paired trades is likely to play out
better than the long end. Even as Intuitive Surgical comes back
down to earth, the real story here is NuVasive's eventual upward
move. It won't come quickly -- few near-term positive
exist -- but as 2011 unfolds, investors are likely to see that
NuVasive's recent quarterly missteps are more of a function of an
unsettled health care environment than any company-specific
troubles. [See our free course:
Catalyst Investing Secrets
As the dust settles, the fact that NuVasive's technology leads to
improved patient outcomes and lower total healthcare costs is
likely to again be the focus of health care insurers -- and
investors. Shares trade for less than 20 times next year'searnings
for the first time in the company's history (going back to
2004). A forward multiple closer to 30 still seems justified in the
context of long-term growth -- that means +50% upside in 2011.
EnerNOC (Nasdaq: ENOC)
Investors love stocks that are timely, looking to buy ahead of
important news or a robust quarter. That's trouble for this clean
energy play, which just reported its seasonally strongest quarter.
EnerNOC earned $1.67 a share in the September quarter, offsetting
about $1.20 in losses in the other three quarters of the year. And
since EnerNOC's profits won't re-appear until next summer,
investors are drifting away, pushing shares down to a 52-week low.
And that spells b-a-r-g-a-i-n for long-term investors.
EnerNOC uses its Network Operating Center (
) to provide energy management and efficiency solutions to assist
grid operators, utilities and large companies. For example, many
utilities must invest in excess capacity to handle unusual demand
spikes that may only happen a few times a year. By sharing theload
with other utilities and working with large customers to agree to
curtail usage at peak times, the utility can save a great deal of
money by cutting the need for additional power plants. The
International Energy Agency (IEA) refers to this as "cost
avoidance," and estimates that by deploying enhanced grid
intelligence, utilities can save nearly $60 billion in the next 20
Investors are also perhaps negatively focusing on the fact that
growth is likely to cool from around +50% this year to around +20%
next year. That's still a respectable growth rate, and it can be
maintained for quite a while to come as the company signs up new
domestic customers and starts to penetrate international markets.
EnerNOC recently signed its biggest contract ever with the
Tennessee Valley Authority (TVA), the nation's largest power
As I noted when I looked at EnerNOC
back in the spring
"young, high-growth companies like EnerNOC may look
expensive based on near-term metrics, but can often be real
bargains in the context of long-term growth." Since then, the
company has invested heavily in sales and other key areas to handle
even more growth in the coming years. And with shares now -20%
below where they were when I wrote about the stock in April, and
-40% off of its 52-week-high, this is a second chance to get in on
a high-growthbusiness model .
Christopher & Banks (
When a company stumbles, you have to determine whether it's a
function of fixable problems or if it's the result of a broken
. In the case of this retailer, shares are hitting fresh 52-week
lows due to tepid consumer spending and poor decisions on the
merchandising front. The company's board has hit the reset button
by installing new leadership, but this is a retailer that still has
considerable brand cachet with its target demographic -- middle
aged-women that have relied on the retailer for many years for
their professional attire. .
Just like Nuvasive and EnerNOC, Christopher & Banks isn't
poised for a quick rebound. Instead, I see
coming in the first half of 2011 in two stages. First, if
employment trends start to improve, so will sentiment toward these
kinds of stocks. Second, new leadership will aim to bring an
improved merchandising touch, and it only takes a little stirring
on the same-store sales front to get investors interested in this
rebound candidate. Notably, Christopher & Banks will be coming
up against very easy sales comparisons as we head into next summer.
Meanwhile, more than half of the company's $186 million
is accounted for in cash. Back that cash out, and the company is
valued at less than 20% of trailing sales. That's less than half or
even a third of the percentage of peers such as
Ann Taylor (
Charming Shoppes (Nasdaq: CHRS)
. Turning around retail operations takes time. Christopher
& Banks has had to do it before, in 1997, and 2003. This down
leg of the cycle will also be met with better days ahead.
Action to Take -->
Stocks hitting 52-week lows are a sign they are out of favor. And
they rarely suddenly move back into favor, so these are long-term
holdings that may take a while to get going again. But when they
do, each of these names looks to have at least +50% upside.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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