3 Stocks Near 52-Week Lows Worth Buying

Updated

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.

Printing profits
I'm stepping over the edge into uncharted territory this week, to a time when we actually used printers and walked uphill to school in three feet of snow (in both directions, of course). That's right, I'm talking about printing and ink specialist Lexmark International (NYS: LXK) .


The concerns about 3-D printing cannibalizing the consumer side of Lexmark's printing business are very well founded. 3D Systems (NYS: DDD) , for instance, has seen printer shipments more than triple to enterprise customers, with rival Stratasys showing considerable strength as well. But the thing to remember is that while commoditized printer-and-ink businesses are completely unsexy, they aren't going to be going anywhere anytime soon and will take years to begin phasing out.

One factor to consider with Lexmark is that it's still incredibly profitable. Cost-cutting measures will help maintain margins and lessen some of the macroeconomic pressure being put on printer demand from Europe. A healthy balance sheet that features $300 million in cash and a dividend yield of greater than 6% are other selling points of Lexmark. Even with the company's reduced guidance, Lexmark's forward payout ratio is just 30%. That means investors are receiving what I feel is a sustainable 6% yield. Many here know me as the contrarian, and this is another example of a beaten down macroeconomic value play.

Get in on the ground floor
Taking a cue from the analyst debate that me and my Foolish cohorts, Travis Hoium and Alex Planes, got into last week over Green Mountain Coffee Roasters (NAS: GMCR) , I'm going to buck the pessimistic trend and bet on brighter fortunes for the company.

Among the concerns that are weighing on Green Mountain are its inability to prudently control inventory levels and the expiration of two key K-Cup patents in September. Additionally, it's facing an increased level of competition, specifically from Starbucks (NAS: SBUX) , which plans on offering its own single-brew coffee system later this year.

In spite of these worries, I feel the market has largely overreacted to what is still a very profitable trend for premium coffee producers. Green Mountain continues to forge strong relationships with Starbucks and Dunkin' Brands to supply K-Cup products in their stores. Prudent fiscal management could also go a long way to allaying fears regarding its growing inventory levels. But when push comes to shove, the biggest selling point on the stock is that Green Mountain is still a very profitable company that's expected to grow at 32% annually over the next five years and is trading at just six times forward earnings. I'm not saying Green Mountain will be anywhere near the $100-plus stock it once was, but I feel it's definitely worth more than its current price tag.

The (not so) Final Fantasy
Speaking of diving into unchartered territory, it's time to dip my toes into a region I've generally avoided since it burned me in 2011 -- China. The company I want to take a closer look at today is online game producer Shanda Games (NAS: GAME) .

I know what you're thinking: "China and a gaming stock... have you lost your mind?" The answer is yes, I have. Shanda Games interests me as an opposite play to GameStop in that it's focused entirely on multimedia role-playing games on the web and through mobile devices. With a rapidly growing class of gamers in China looking for entertainment, Shanda's profits could quickly expand if they put the right games in front of consumers.

Currently, Shanda's lineup includes Legend of Immortals, AION, and Dragon's Nest, but the more exciting development has been its ongoing partnership with Square Enix Group to develop Final Fantasy XIV (not so final if it's the 14th installment, is it?). The massively popular game could help drive Shanda's $264 million in net cash even higher.

Foolish roundup
The big names just continue to roll in at 52-week lows. This week we looked at companies that either have strong cash positions (Shanda and Lexmark), delectable yields (Lexmark), or high growth rates (Green Mountain and Shanda).

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." Find out 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!

The article 3 Stocks Near 52-Week Lows Worth Buying originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. 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.The Motley Fool owns shares of Green Mountain Coffee Roasters, Starbucks, GameStop, and Costco. Motley Fool newsletter services have recommended buying shares of 3D Systems, Stratasys, Green Mountain Coffee Roasters, Starbucks, and Costco. Motley Fool newsletter services also recommend writing covered calls on Starbucks and GameStop, writing naked calls on Dunkin' Brands, and creating a lurking gator position in Green Mountain Coffee Roasters. 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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