You love buying your shirts when they go on sale. And who can resist a buy-one-get-one-free offer? So when our stocks go on sale, why do we bemoan their low prices?
Smart investors like Warren Buffett or Marty Whitman love it when their stocks are suddenly selling at bargain-basement prices. For them, these companies become no-brainer buys.
The investors in the Motley Fool CAPS community apparently also like a bargain. Below, you'll find a pair of companies whose shares are selling at least 50% below their 52-week highs, but which still earn high honors from our investor-intelligence database. Consider it a BOGO sale on stocks.
CAPS Rating(out of 5)
% Off 12-Month High
ATP Oil & Gas (NAS: ATPG)
Zalicus (NAS: ZLCS)
Source: Motley Fool CAPS.
Naturally, we want you to look a bit closer at these stocks before buying. You can get low-priced appliances in the dent-and-ding section of your home-remodeling superstore, but their quality might not be as high as you'd like. Same thing here: Make sure there's nothing seriously wrong with the company before you plug it into your portfolio.
Standard of excellence
With almost $2 billion in debt and just $172 million in cash, there's little wonder why investors are concerned about the financial viability of independent-energy specialist ATP Oil & Gas. It has a debt-to-equity ratio of around 650% and ratings agency Moody's suggests the oil driller may have to restructure because its asset base and cash flows are insufficient to pay for the second-lien notes it holds.
It holds concentrated drilling locations in the Gulf of Mexico and the North Sea, but they've been characterized by production declining at rates far faster than those associated with wells located onshore. The market assumes the worst, carving away two-thirds of its value from recent highs.
Despite pursuing a strategy similar to McMoRan Exploration (NYS: MMR) or Energy XXI (NAS: EXXI) of tapping into wells others have found inefficient or unprofitable, those deep-water drillers have fared significantly better than ATP in reworking ExxonMobil's abandoned efforts, even though their shares have pulled back from recent highs as well.
Yet Motley Fool blogger David Talley thinks that while ATP's management may be too ebullient in its suggestion its shares are worth north of $100 each, the market is equally over-pessimistic with its $7 valuation. The true value, he believes, lies somewhere in between:
ATP management has historically over-promised and under-delivered, and I am skeptical, like the market, that ATP will be able to produce enough oil and gas to meet interest payments. However, with that said, the market may still be overly pessimistic on the name. When discounting the asset values above and comparing with similar companies, there could be value in ATP's shares.
Tell us in the comments section below or on the ATP Oil & Gas CAPS page if you think it will overcome its stumbles and pump out greater profits again. Then go and add it to your Watchlist to keep check on its progress.
Eye in the sky
Because biotech Zalicus has just one product on the market, Exalgo, which is an extended-release formulation for pain management, there's heightened risk baked into its shares. Whether it's reliance upon a single drug for revenues, as Elan does with Tysabri, or in customers, as happened with American Superconductor relying upon Chinese customer Sinovel Wind for the vast bulk of their income, if the partner blows up you can receive the blowback.
So the news that Covidien had settled a patent dispute with Watson Pharmaceuticals (NYS: WPI) over generic Exalgo doesn't bode well for the biotech. Although Zalicus still has a year and a half more of exclusivity with Covidien within which it receives royalties on its sales of the drug, Watson can now start producing generic versions seven months sooner than previously expected. As a result, Zalicus expects its royalty stream will be halved when that happens, making it even more crucial that its most advanced pipeline product, Synavive -- a drug to treat immuno-inflammatory disorders -- meets with success in late-stage trials.
Considering that nearly three dozen All-Star CAPS members unanimously agree Zalicus will outperform the broad market indexes going forward, it seems they're confident it should meet those goals.
Add Zalicus to your Watchlist and let us know in the comments section below if the more-rapidly approaching horizon of exclusivity will impede the biotech's progress.
Have half a mind
Sign up today for the completely free CAPS service, and tell us whether these stocks are twice as good at half the price. These companies may carry heightened risk both here and around the globe, check out The Motley Fool's brand-new report, "The Motley Fool's Top Stock for 2012." It highlights a company that is revolutionizing commerce in Latin America. You can get instant access to the name of this company by clicking here -- it's free.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Moody's and Covidien. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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