Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.
Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.
Pedal to the metal
I already went through my phase of adding natural gas companies earlier this year. Now it's time for a near-weekly addition of a mining company. Today I'm thinking big -- and internationally -- with Vale (NYS: VALE) , one of the largest iron ore producers worldwide.
The company and its peers have been hurt recently by weaker iron ore pricing and the concern that a global slowdown will weaken demand. This is the same weakness we saw in the United States' biggest iron ore producer, Cliffs Natural Resources (NYS: CLF) , which reported an 11% drop in net income in late April.
Vale, specifically, alluded to higher tax rates and lower near-term iron-ore prices affecting its bottom line but also countered that it expects strong global demand for its products. What has me intrigued is the company's sales breakdown. In its latest quarter, 51.2% of revenue came from Asia, a region that -- while slowing -- is still outgrowing nearly every other country. South America, another region that hasn't seen the same troubles that Europe has dealt with, accounted for 22.7% of Vale's sales. With its European exposure clocking in at only 16.7% and the company valued at less than six times forward earnings, it seems a safe bet to add to a portfolio looking out five to 10 years.
Out on a limb
Week in and week out, I pound the table on companies like Vale that are trading at the low end of their historical valuation range. With regards to Echelon (NAS: ELON) , an energy control networking company, I'm going to take a giant leap outside of my box.
Echelon hasn't reported an annual profit since 2004, but it has a lot of little things going for it that make me feel it's right on the cusp of being a great investment. For one, the company doesn't dilute its shareholders with secondary offerings. Ten years ago, the company had 41 million shares outstanding; now it has only 42 million. Primarily, it's Echelon's smart grid technology that helps electric utilities divvy out their generated electricity and control meters that has me the most excited. Consider Echelon among many so-called "green companies" that can actually reduce electricity consumption and maximize utility efficiency.
In its most recent quarter, Echelon reported a 42% spike in revenue, which was almost entirely because of a near-doubling in smart grid revenue to $28.7 million from $14.6 million. With the company focused on reining in expenses and reducing its workforce by 10%, I feel profitability isn't too far off. It's a speculative gamble that offers a good bit of reward with moderate risks.
A pretty mosaic
What kind of week would it be without me blaming the weather? Except this time, I'm not blaming the warmer-than-usual weather throughout the U.S. for potash and phosphate producer, Mosaic's (NYS: MOS) weakness. Instead, I am claiming it could be the reason Mosaic rebounds from these low levels.
Warmer weather this year has been exceptionally friendly to farmers who are looking for another great year of crop production. Companies like Mosaic supply products that aid in the growth of these crops and, according to Intrepid Potash (NYS: IPI) , which just recently reported its earnings, farm production is on pace for normal growth this year.
This isn't to say that potash producers haven't seen earnings estimates falling, as potash prices have remained challenged and expenses have risen. Intrepid, for instance, fell victim to higher cash operating costs, which rose 17.5% from the year earlier. Mosaic, on the other hand, recently updated its upcoming quarterly guidance to the high-end of its previous forecast because of strength in the crop nutrient market. At less than 10 times forward earnings, this is the type of growth that value investors would love to wrap their hands around.
We have something for everyone this week: growth, value and speculation. Invariably, all three would be doing considerably better if the global economic outlook weren't clouded by troubles in Europe, but all three business models have longevity on their side with their products and should outperform in the long run. I'm so confident that these three names will bounce off their lows that I'm going to make a CAPScall of outperform on each one.
In the meantime, consider adding these potential winners to your free and personalized watchlist and get your own personal copy of our special report, "The Motley Fool's Top Stock for 2012," to see which company our chief investment officer has dubbed the "Costco of Latin America." Best of all, this report is completely free, so don't miss out!
At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He sometimes enjoys the comfort of staying inside the box a little too much. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always on the lookout for a good deal.
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