Buy These Fallen Angels for Outsized Returns
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I often search the 52-week low list to generate investment ideas, while keeping in mind any stock may find itself no this list for a variety of reasons. It might be due to the deterioration in business fundamentals, or the overreaction of the market given short-term business headwinds. If the latter unfolds, it's certainly a prime opportunity to pick up good businesses at a discount.
This time I set up the screen to find businesses, which had favorable operating performances, yet at their 52-week lows with several additional criteria: (1) market capitalization is larger than $1 billion, (2) stock price has plunged more than 15% in its 52 -week period, (3) it has been paying dividends for at least 10 years, and (4) its ROIC must be greater than 10%. Here are the top 3 results:
Intel (NASDAQ: INTC) is the global leader in the semiconductor business with nearly 60% market share of the global microprocessor market. The second player in the market, Advanced Micro Devices (NYSE: AMD) is far behind Intel, with only 25% market share. For the x86 microprocessors, Intel owns 80% of the global market. Investors currently have different opinions on whether Intel is a value or a value trap. Intel is trading at $20.16 per share, with a total market capitalization of $100.29 billion. Over the last year, Intel lost nearly 19.5% of its value in the market. The plunge in Intel’s price might br due to its large exposure to the PC business environment, which is weakening. Indeed, the majority of its revenue came from PC Client Group, with 66% of the total sales. Intel has a history of paying consistent and growing dividends over the years, from $0.08 per share in 2002 to $0.78 per share currently. The dividend yield is rich, at 4.3%. Trailing twelve months, Intel delivered nearly as high as a 21.7% return on invested capital.
Carbo Ceramics (NYSE: CRR) is considered to be the global largest ceramic proppant provider for fracking of deep oil and gas wells, with the majority of its revenue generated in the US, accounting for 79% of its total sales. It has two main customers including Halliburton Energy Services and Schlumberger; each took more than 10% of the company’s total revenue in the past 2 years. Over the past 52 weeks, Carbo declined by more than 44%, from more than $141 per share to only $78.78 per share currently. The current total market capitalization is $1.82 billion. Like Intel, Carbo has been generating positive net income during the past 10 years, with its consistent double-digit returns on equity. Trailing twelve months, its ROIC was 18.52%. Carbo is also a consistently growing dividend payer, from $0.24 per share in 2002 to $0.88 per share in 2011. The current dividend yield is 1.3%.
Gold Fields Limited (NYSE: GFI) is a gold and copper exploration, processing and smelting company in different regions including South Africa, Ghana, Australia and Peru, with attributable proven and probable reserves of around 80.6 million ounces of gold (including copper expressed as gold equivalent ounces), at the end of 2011. During the last year, its share price plunged by more than 30%, from $16.30 to only $11.32 per share currently. The total company is worth $8.25 billion in the market. In the past 10 years, it has paid out consistent but fluctuating dividends. The current dividend yield is 4.4%. In the past 10 years of operation, it had only one year of loss in 2005. Trailing twelve months, its return on invested capital was nearly 11.5%.
Gold Fields has been trying to expand its operation out of South Africa for resource diversification, but currently, its operation is heavily in the South African regions. Moody’s downgraded Gold Fields to a Ba1 rating because of the high dependence of cash flow on its Ghana operations in the medium and short-term. However, the recent spin-off of its two troubled mines, KDC and Beatrix into a new company, Sibanye Gold, has been appraised by the market, sending its share up 7% in the day it announced the news at the end of November.
Foolish Bottom Line
Investors need to look deeper into each situation to determine the suitability of these stocks for their own portfolios. Personally, I would pick Intel and Carbo for their overwhelming market leading positions, and growing dividends with decent yields. Furthermore, both have growth potential: Intel with mobile devices and Carbo with its increasing activities in shale oil and gas drilling. Look for both to rebound strongly in the future.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of CARBO Ceramics and Intel. Motley Fool newsletter services recommend Intel. 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!