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Bottom feeding in stocks is always risky business, but if done right, can lead to market-beating performance.
Sometimes stocks are trading at 52-week lows for a reason. Other times, you’re getting a great buying opportunity. However, determining which-is-which is always the hard part.
It pays to know why a stock has been beaten down.
For example, both Hershey (NYSE: HSY) and Transocean (NYSE: RIG) trade near 52-week lows and are offering investors great value — trading at multi-year low P/E (price-to-earnings ratios).
Hershey was beaten down last month due to a price hike in its packaged products. But major comps, Kraft Foods and Nestle, are sure to follow suit. Owning the largest fleet of offshore drilling rigs.
Transocean was hit especially hard as the entire market sold off the industry earlier this year.
Well, I’m back in the bargain bin, searching for compelling investments that are trading at 52-week lows. The three stocks below have made new 52-week lows over the last week or so, but they look to be very compelling long-term investments.
Here are the top 3 beaten down stocks making new 52-week lows:
No. 1 Beaten Down Stock: Oceaneering International (NYSE: OII)
Like Transocean, Oceaneering operates in the beaten down offshore drilling space. The company provides engineering services for offshore oil and gas companies. It has been sold off with the drilling industry, ultimately creating the current buying opportunity.
Oceaneering’s key segments include remotely operated underwater vehicles (ROVs) and subsea products. ROVs are keys to deepwater drilling construction, and maintenance and repair services. The company is the market share leader when it comes to ROVs, owning over 75% of the market. It’s also a market share leader in subsea products, which includes umbilicals for providing power to undersea equipment.
Compared to its major oil and gas equipment peers, it’s easily one of the best investments in the market. It trades at a forward P/E (price-to-earnings ratio based on next year’s earnings) of 14.7. Factor in Wall Street’s earnings expectations for the next five years and Oceaneering trades at a P/E-to-growth (PEG) ratio of just 0.85. That’s well below the likes of industry peers Schlumberger and Halliburton, which trade at a PEG of 1.2 and 1.0, respectively.
No. 2 Beaten Down Stock: Loews Corporation (NYSE: L)
Loews is a conglomerate with investments in hotels, offshore drilling, natural gas pipelines and insurance. Driving the stock to 52-week lows has been low natural gas prices.
Its Highmount Exploration & Production investment hasn’t played out well. Loews took a $167 million charge against the exploration and production company during the second quarter. It’s now planning to sale the company in an effort to reduce its natural gas exposure.
CNA Financial is the company’s workhorse, generating some 67% of its revenues. CNA is primarily a property and casualty insurer. Diamond Offshore is another one of Loews’ key investments, generating just under 20% of the company’s revenues and is a major offshore drillers.
Going forward Loews is looking to strengthen its presence in the hotel market. It owns 19 hotels in the U.S. and Canada, but the segment generates less than 5% of the company’s total revenues. It plans to boost its hotel portfolio to 30 properties over the next four years.
Loews trades at a forward P/E of 12.2, putting its PEG ratio at an ultra-low 0.5. Its P/B (price-to-book) ratio of 0.8 is also the lowest the company has traded at in over 18 months.
No. 3 Beaten Down Stock: Fossil Group (NASDAQ: FOSL)
Fossil is one of the best-known accessory retailers around. Its second quarter earnings report from earlier this month helped push the stock down to 52-week lows. The company is seeing strong performance in Asia and Europe, but the retail environment in the U.S. has been weak. The company’s current P/E ratio of 15 is the lowest levels we’ve seen in two years.
Its portfolio of partnership brands includes Marc Jacobs, Relic, DKNY, Burberry, Adidas and Armani Exchange, among others. But one of its top partnerships is with Michael Kors, which is gaining traction in overseas markets and should take pressure off its U.S. retail operations.
The smartwatch movement has yet to put any serious pressure on the company. In fact, it could be catalyst for earnings growth. Fossil has teamed up with Google to bring Google’s Android Wear (wearables operating system) to Fossil’s fashionable wrist-wear.
The three stocks above appear to be trading at enticing valuations and the headwinds that have driven their stock price down are only temporary. Often times, you’ll get cut trying to catch a falling knife. But it looks to be a case of great timing with the three stocks above.
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