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Warren Buffett Would Love These Undervalued Stocks
11/16/2012 2:30:00 PM
By: David Sterman
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
Investors could see such a strengtheningprofit picture in rival Norfolk Southern (NYSE: 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
So when you see solid industry players such as Intel (Nasdaq: INTC ) , Cypress Semiconductor (NYSE: CY ) , Freescale Semiconductor (NYSE: 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
The cash king
The rare growth stocks in defense
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 .
David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of INTC, DVN, AVAV in one or more of its "real money" portfolios.