3 Value Stocks to Watch Closely

Just as we often examine companies that may be rising past their fair values, we can also find companies trading at what may be bargain prices. While many investors would rather have nothing to do with stocks wallowing at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to a company's bad news, just as we often do when the market reacts to good news.

Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.

An ocean of opportunity
First, I suggest we dig deep for value by taking a closer look at deepwater driller SeaDrill .

Source: SeaDrill.

SeaDrill, like a number of other drillers, has been hit by a confluence of factors. To begin with, oil prices have retreated from the $100 per barrel mark, which could reduce oil and integrated gas companies' eagerness to undertake new projects. Secondly, the prospect of interest rates rising is a concern for a majority of the drilling industry. SeaDrill is currently sporting $12.1 billion in net debt, meaning if it has to roll over any of its debt, it could receive far less favorable interest terms. Finally, the emergence of new drilling rigs onto the market, combined with the cycling-out of older rigs (at a fairly slow pace), has hampered the company's ability to sign new contracts for a number of drillers.

Still, I see this big tumble in SeaDrill's stock as a potential buying opportunity.

Perhaps the most attractive aspect of SeaDrill is the age of its drilling rigs. New rigs are more efficient and command higher dayrates, but they're also costly and have a lot to do with SeaDrill's high debt levels. More importantly, they're more in-demand by oil and gas companies. In SeaDrill's most recent quarter, the company reported 96% economic utilization for its floaters and 93% for its jack-up rigs, primarily as a result of having one of the youngest fleets in the world. 

Another important point is that worldwide energy demand is only expected to rise over the long term, which should eventually accommodate the influx of new rigs into the deepwater market. According to estimates from the International Energy Agency, global oil demand is projected to increase at a rate of 1% per year between 2008 and 2030 to 105 million barrels. This slow but steady growth should play right into SeaDrill's hands.

Finally, SeaDrill compensates its shareholders very well. It remains to be seen whether SeaDrill can maintain its current dividend yield of 11%, but at $1 per quarter in payouts, shareholders are being paid handsomely to hang on and believe in the company's game plan and newer rigs. At a mere eight times forward earnings, now could be the time to consider SeaDrill as a deeply discounted value stock.

On the clearance rack
For the second value stock this week I'll direct your attention to the retail aisle and encourage you to keep a closer eye on Chico's FAS .

Source: Flickr user John Fowler.

Chico's is predominantly a bricks-and-mortar retailer that provides apparel and accessories to mature women. The reason it's been clobbered so mercilessly in recent weeks has to do with the company's less-than-stellar second-quarter report at the end of August, which saw the company widely miss Wall Street's profit expectations. For the quarter, Chico's net income dipped to $30.1 million from $43.6 million in the prior-year period as higher discounting led to a 2.4% drop in gross margin.

Though many investors jumped off the bandwagon following this earnings report, I'd suggest now could be the time to hop back on.

One factor to consider here is that Chico's discounting could actually have a subtle purpose. It's no secret that shoppers like discounts, and discounts help drive customer traffic into a store. However, Chico's is also dealing with a unique scenario. Talbots sold itself to a private-equity company in 2012 and closed a number of its stores, while Coldwater Creek went bankrupt and completely liquidated its stores. These displaced shoppers are accustomed to discounts, and Chico's ability to bite the margin bullet now in order to forge a connection with these displaced mature female shoppers could make them customers for life. I think a few quarters of increased discounting could be a genius long-term move for the company.

Also, investors seem to have forgotten the chatter from just a few months ago that Chico's could be a takeover target. Although I dislike placing too much emphasis on a buyout as a reason to buy a stock, Chico's does have a long history of success within the mature women's category. On top of remaining healthfully profitable, Chico's also has $209 million in cash and no debt, which makes its $2 billion enterprise value very reasonable for a private-equity firm or retail peer that could be looking to acquire a well-run company with a focused consumer base.

Following Chico's earnings warning the company is now trading at 17 times forward earnings, but it's likely to post a high-single-digit to low-double-digit longer-term growth rate, making it a value stock in the retail sector that investors would be wise to follow.

It's time to check out this value stock
Lastly -- and speaking as a watch fanatic to you, the value investor -- I'd encourage you to add watch and accessories maker Movado Group to your watchlist (no pun intended).

Movado annual shareholder meeting presentation slide. Source: Movado.

Movado shareholders dealt with a bit of a battery drain late last month after the company reported just a 3.8% increase in second-quarter sales to $143.6 million and a small increase in year-over-year EPS to $0.47 from $0.44. By comparison, Wall Street had been forecasting revenue of roughly $153 million and $0.55 in EPS.

Though Movado's results are a bit disappointing considering how consistently it has crushed estimates over the past few years, I also believe much of the miss is being blown out of proportion. For example, a good chunk of Movado's "miss" came on the heels of unfavorable currency exchange translation and a higher effective tax rate. Neither factor leads me to believe there's any concern with Movado's business model, and that has me thinking that investors may have overreacted to its report. 

There's also the fact that Swiss watch sales continue to grow. Even though we've seen a leveling off in growth of both wristwatch volume and value coming out of Switzerland, 2014 could mark the fifth consecutive year of sales growth in the category. Movado, which offers an affordable luxury model watch, and also partners with a handful of well-known accessories makers, is reliant on consumers' practically insatiable appetite for brand-name products.

With a forward P/E now of just 12, a modest dividend yield of 1%, and a PEG ratio below one, implying double-digit growth expectations over the next five years, this weakness in Movado's stock could be temporary.

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The article 3 Value Stocks to Watch Closely originally appeared on Fool.com.

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, and recommends SeaDrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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