Themarket has taken on a sickly tone in recent weeks, but it's
important to remember that the S&P 500 and the Dow Jones
Industrial Average are still within 10% of their multi-year highs.
Yet a number of stocks have entered into their own personalbear
market , breaching 52-week lows or, in some instances, multi-year
lows.
Counterintuitively, the weakest stocks in this market are
starting tooffer some of the most compelling opportunities, as they
stand a chance to retake lost ground if the market stops falling. A
stabilized market brings out fresh buyers in search of
newly-created value.
Here's a look at 13 stocks that have either hit 52-week lows or
have approached them in recent days, but still look very
well-positioned for a rebound in the next 12-18 months.
Great companies hitting fresh lows
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The Buffettproxy
When Warren Buffett's
Berkshire Hathaway (NYSE: BRK-A)
announced plans in late 2009 to acquire railroad firm Burlington
Northern Santa Fe, it was quickly seen as a savvy move. After all,
railroad operators have sharpened their game during the past
half-decade and now operate much more efficiently than in the past,
which has enabled them to produce prodigiouscash flow .
Investors could see such a strengtheningprofit picture in rival
Norfolk Southern (
NSC
)
as well, which posted a record $3.2 billion inoperating profit in
2011. This translates into 28.7% operating margins, which is also a
company record.
Yet concerns about a possible slowdown in rail traffic in 2013
are pushingshares down to a level that Buffett would surely find
attractive. He's known for seizing on stocks that trade lower, even
as they have a wide long-term moat around their business.
The chip slump
Semiconductor stocks are taking it on the chin these days, as
analysts anticipate a lackluster demand backdrop for semis in the
year ahead. Yet the precise time to buy this highly-cyclical group
is when they have fallen out of favor and their valuations sharply
discount the rebound that will likely emerge before we reach
mid-decade.
So when you see solid industry players such as
Intel (Nasdaq: INTC)
,
Cypress Semiconductor (
CY
)
,
Freescale Semiconductor (
FSL
)
and others fall far from their highs, you need to pay attention as
compelling values start to emerge. Take Intel, for example. The
industry's biggest player has generated at least $15 billion in
operating cash flow in each of the past two years, yet now sports
anenterprise value of just $90 billion. At six times trailing cash
flow, the stock will likely turn out to be quite the bargain if you
stick around until the chip cycle turnsback up .
Freescale Semiconductor also has good catalysts, thanks to a
recently announced restructuring. The company's newCEO , Gregg
Lowe, plans to cut costs, reinvest the savings in the chip maker's
highest-margin segments and sell divisions that are focused outside
the company's core auto and industrial markets. He also plans to
shed debt, which has been a key millstone for the stock. Goldman
Sachs sees more than 50% upside to its $12.50price target , adding
that Freescale is "our favorite idea for investors with high risk
tolerance tocapitalize on what we believe will be a solid
supply-driven 2013 recovery."
The energy players
There are ample opportunities to speculate on small, off-the-radar
energy producers, but these days, there's a fresh opening for a
pair of industryblue chips :
Devon Energy (
DVN
)
and
Apache Corp. (
APA
)
. Devon, for example, trades for just four times consensus 2013
cash flow forecasts. Both companies have industry-leading exposure
to the highly-productive Permian Basin Shale formation. With their
extensive exposure to crude oil, these stocks should prove to be
less volatile than gas-only drillers if natural gas prices are hit
by profit-taking.
The cash king
The currentmarket value for telecom equipment provider
Tellabs (Nasdaq: TLAB)
is hard to fathom. Tellabs' $1 billion market value isn't much
above the company's $942 million net cash position. Shares also
trade for roughly 30% below tangiblebook value . Management should
seize the moment and initiate a massive stock buyback -- which is
always wise when a cash-rich company trades far below tangible book
value.
The rare growth stocks in defense
There's no question defense spending will come under pressure in
coming years. The U.S. military will be pressed to come up with
cost-saving solutions that also take troops out of harm's way. This
should set a robust long-term growth backdrop for
iRobot (Nasdaq: IRBT)
, a maker of ruggedized, maneuverable robotic systems, and
AeroVironment (Nasdaq: AVAV)
, which makes unmanned aerial drones. They each have appealing
non-military divisions as well.
Still, investors are focused on the near-term, perhaps taking
note that if the "Fiscal Cliff" comes to pass, then spending on
products these firms make might be frozen. Perhaps this will be the
case, but each of these stocks is off by 50% or more from the peaks
seen in the past few years, creating a fresh opening for investors
who may have missed these attractive stocks before.
Risks to Consider:
These stocks could move lower still -- a key consideration for
short-term investors. Indeed it's hard tospot a bottom for the
market right now, which is why a long-term focus is essential.
Action to Take -->
The logic of buying great companies at lows is self-evident: They
possess the exact same long-term prospects as they did six or 12
months ago, but can now be had for 25% or more from their peaks,
solely due to a lack oftimeliness .