52-Week Low and High Return Stocks

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As a value investor, I often screen for bargain-priced stocks, which experienced significant falls in their stock prices. The good place to start is the 52-week low list. This simple starting point was recommended by Walter Schloss, the famous “cigar butt” value investor, who studied with Warren Buffett under Benjamin Graham. However, I would demand more. In the 52-week low list, I would like to pick the stocks with good profitability and cheap valuation. This time, I would run the screen using several simple criteria: (1) market capitalization is more than $1 billion, (2) the price decline in 52 week is greater than 30%, (3) return on invested capital is greater than 15%, and (4) the EV/EBITDA is less than 6x. Here are the top three results:

Dell (NASDAQ: DELL) has been considered a very big player in the PC industry. Thus, investors have conflicting ideas about whether Dell is a value play or a value trap. However, looking at the revenue breakdown, we can see that revenue segments are quite spread out. The majority of its revenue was from Mobility Client, accounting for 31% of the total revenue. The second biggest revenue sub-segment was Desktop PCs. The other three sub-segments included servers and networking (13%), Services (13%) and Software and peripherals (17%).

Over the 52-week period, Dell experienced a decline of nearly 36.9% in its stock price, mainly because of investors’ pessimisms about its business reliance on the PC industry. Trailing twelve months, it delivered a 17.65% return on invested capital. Dell is trading at $10.06 per share, with the total market capitalization of $17.45 billion. The EV/EBITDA is only nearly 3.5x. On a last note about Dell, it just paid the first dividend to shareholders in September this year: $0.08 per share.

Apollo (NASDAQ: APOL) is one of the largest private education providers globally, with several educational institutions including University of Phoenix, CFFP, BPP, Western International University, ULA, etc. Out of $4.25 billion in revenue in fiscal 2012, it derived nearly $3.9 billion from the University of Phoenix segment. Apollo is operating in the for-profit education industry, which received criticism from Jim Chanos, the famous short-seller, because of its business model. He mentioned that the business was flawed because it depended on the taxpayers’ money.

Apollo, along with other for-profit educational institutions, have plunged significantly during the last 52 weeks. It lost 61.5% of its market value. Trailing twelve months, it returned 24.24% on invested capital. It is currently trading at $19.06 per share, with the total market capitalization of $2.14 billion. The market is valuing Apollo at only 1.75x EV/EBITDA.

Joy Global (NYSE: JOY) is the leading mining equipment maker for extracting many kinds of minerals, including copper, iron ore, coal, oil sands, etc. It was reported by the company that the majority of its sales (41% in 2011) was made to the mining industry. It is a good thing that the company does not have a customer concentration, as no customer accounted for more than 10% of its total revenue. During the previous 52-week, Joy delivered a loss of nearly 38%. However, the business has been generating double digit return on invested capital since 2005. Trailing twelve months, its ROIC was nearly 21%.  The stock is trading at $56.18 per share, with the total market capitalization of $5.95 billion. The market is valuing Joy at 5.5x EV/EBITDA. Joy just paid 17.5 cents per share in dividends in November to shareholders. 

Foolish Bottom Line

The three stocks above are cheap, and they are cheap for good reasons. In addition, they have been beaten down by the overly pessimistic sentiment of the overall market. With the historically good returns on invested capital, cheap valuations, and significant declines in the last 52 weeks, I personally think by betting small portions of their portfolios in each of those stocks, investors would have a much higher probability of winning than losing.

 

 

 

 

 


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Joy Global. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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