Investors who like to hunt for bargains often lean on the 52-week low as a guide.
Companies that are trading at or near their lowest level of the past year can sometimes be had on the cheap. Other times, they are there for good reason, and only likely to fall further.
Proximity to a 52-week low is therefore only a starting point in discovering undervalued stocks. Further digging in the form of fundamental and/or technical analysis is required to distinguish the gems from the fool’s gold.
Using the S&P 500 as an example, there are presently 135 tickers trading within 10% of their respective 52-week lows. Some have been setting fresh lows for a while now and will probably keep doing so. Others are just going through a rough patch but still have solid long-term growth prospects.
Let’s zoom out to the broader U.S. stock universe. What are some of the most compelling names hovering around their 12-months lows? Here are three that are begging to be pulled out of the bargain bin.
Is the Columbia Sportswear Stock Pullback a Buy?
Columbia Sportswear Co. (NASDAQ: COLM) is about 4% away from its 52-week low set last month. The outdoor apparel maker has been pulled down by expectations of margin contraction tied to higher freight and SG&A costs. While the former is largely out of the company’s hands and tied to supply chain issues, the latter is tied to future growth opportunities.
The sales team is getting paid more as part of Columbia’s plan to expand its global retail presence, create new demand, and other incentives. Typically these programs take time to prove worthwhile in terms of profitability. Eventually they should translate to the impressive bottom line performances that the market has been accustomed to with Columbia since its 1998 listing.
Healthy brick-and-mortar sales along with a surging direct-to-consumer (DTC) business makes Columbia one of the strongest apparel companies in the country. Last quarter the two channels produced 39% and 33% sales growth respectively. Strong brands that are popular with outdoor enthusiasts are allowing the company to charge full price and partially offset rising input costs.
The near-term margin pressures are likely to ease as supply chain pressures subside and growth initiatives bear fruit. Analysts are projecting 8% EPS growth on top of last year’s strong recovery and an acceleration in bottom line growth from there. A leading apparel manufacturer with a debt free balance sheet won’t trend lower for much longer.
What is a Good Transportation Stock?
Expeditors International of Washington, Inc. (NASDAQ: EXPD) is just one of the many shipping and logistics companies feeling the effects of global supply chain disruptions. The stock has given back almost all of its 2021 gains and set a new 52-week low in the process.
A classic example of ‘what have you done for me lately?’, the market has long forgotten the fact that profits doubled last year amid soaring demand for Airfreight Services. Instead, Expeditors’ shares are being dragged lower by weakness in the Ocean Freight & Services segment. Congestion at ocean ports worldwide complicated by the Russia-Ukraine conflict has brought the company’s second largest business to a crawl.
The longer-term outlook is healthy though and a reason to buy the discounted stock at a low. God willing, the geopolitical landscape will improve in the back of the year. If it does and the logistics bottleneck loosens, the market will be reminded that Expeditors and its peers never had a demand problem.
Why Expeditors and not one of its competitors? For starters, Expeditors is one of the most shareholder friendly transportation companies given its rising dividend and buyback program. It is also more tech-forward than most due to its digital LTL shipping platform Koho. A cost basis in the $90’s would be a favorable entry for this global shipping play.
What is a Good Insurance Stock?
First American Financial Corp. (NYSE: FAF) established a fresh 52-week low of $57.58 last week. For investors looking for a fundamentally sound insurance holding, this is about as inexpensive as it gets. The company’s exposure to the domestic real estate market also makes it a unique double play.
Residential and commercial property transactions are First American’s wheelhouse. It offers title insurance, closing services, home warranties, and related products to real estate players nationwide. It is coming off a year in which revenue climbed 30% thanks to a hot housing market and rise in commercial construction activity.
This year First American has rapidly rising interest rates at its back, which should drive improved net investment income (NII) and margins. Some are concerned this could be washed away by the impact of higher mortgage rates on home buying activity. But demand is likely to stay robust for some time as millennials and other first-time homeowners prop up an overwhelmingly healthy housing market.
At 1.2x book value, First American shares are trading at a significant discount to specialty insurance peers. Upward trending rates and long-term real estate sector appreciation should have investors feeling high about this 52-week low.
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