Are you reeling from the effects of Thursday's great selling spree? If you are like a majority of the market investors, you probably took a hit, but even a severe storm will have a rebuilding process that follows. In this case, the storm of the sell-off has uncovered some hidden gems. The fundamentals are sound, the future growth appears likely and even three of them offer dividends to keep investors on board. Many investors have patiently awaited this pullback in the market and there is a feeling among this contingent that this bear run can continue to cut deeper. It is my feeling that there are plenty of places where patience can now be rewarded and even if you elect to wait further still, keep these four issues in mind to make a re-entry at some point with less of a risk being your reward.
Share values are all from the close of Thursday, June 20th
Windstream (WIN) - $7.80 (52-week low - $7.78, 52-week high - $11.04)
Windstream provides communication and technology solutions like cloud computing primarily to rural customers. Windstream's stock has been beaten down despite having some decent numbers from the first quarter. This has been the case for the industry as Century Link (CTL) and Frontier Communications (FTR) have been battling similar woes. The good news for Windstream is that there were at least decent increases pretty much across the board on revenue results versus a year ago with the data and integrated services division exhibiting a robust 8% increase. These results for the first quarter coupled with the addition of the Avaya Aura Solution to its cloud-based network, should help ensure more positive results for this coming year and beyond. Another catalyst for Windstream was the release of a study by Wainhouse, a research firm, that projected the unified communications sector to grow to $13.4 billion by the end of the year. On top of all that, Forbes magazine just named Windstream a top dividend stock with insider buying just this week. All this buzz and Windstream has now dropped to its 52-week low.
This sector has been hit hard across the board, but Windstream has some better than normal news and a 12.0% dividend yield. Sure the yield is high in part because of the low valuation Windstream currently has, but Windstream has a rather low $4.62 billion market cap with over $6.15 billion in revenues last year. Windstream's stock has a 50-day moving average of $8.30 and a 200-day moving average of $8.75 a share providing evidence of its slide in 2013. Some of Windstream's devaluation could have come from its $4.5 million loss in the fourth quarter of last year, but that was righted with a nice $52.3 million profit in the first quarter of 2013. Windstream has a significantly lower forward P/E ratio of 15.61 that is almost half of the current value of 29.21, so do better times look to lie ahead? Despite the market downturn, a double-digit dividend yield like this warrants more serious investor attention.
Glu Mobile (GLUU) - $2.26 (52-week low - $1.99, 52-week high - $5.90)
Glu Mobile has been around since 2001 and went public in March of 2007, but one thing has really been missing from Glu's efforts and that has been a major hit. Despite this, Glu continues to produce games that get noticed and has exhibited staying power in an industry that usually is very unforgiving. Experts have been saying that things are looking up for the future for years now, but some positive events could actually pull the company into profitability by early next year. This mobile games producer of Contract Killer, Gun Brothers, Deer Hunter, Samurai vs. Zombies Defense and more for smartphones and tablets keeps cranking out more games, but some new developments might help bear the real fruit. Real money gaming and a new platform to launch games-as-a-service (GAS) should really help keep the company going as well as the growing smartphone population in countries such as China, and India, which will help grow Glu's customer base. Glu Mobile has more than doubled its monthly active users (MAU) since 2011 and does have over 70 games produced since 2008. These catalysts should bring revenue growth even though this has been heard before and Glu has yet to deliver elusive profits. The fact that Glu is still in the game and is in a position to continue to grow, gives it even more opportunity for that one blockbuster game to get developed.
What is in store now for a company with a little more than $21 million in cash that has to offset a cash burn that has been over $5 million per quarter? Well, time is not on Glu's side but some good advances should lead to closing this cash burn gap probably by the first quarter of next year. If this does happen, Glu currently offers a valuation with a market cap of $154.7 million while having current revenues that should top $80 million or more this year. This revenue should go up and more than likely Glu's share values will go up with it. The only negative will be if the timing of any gains is off just a bit, you might be looking at some stock dilution during the middle of next year. Despite having no debt, a stock offering will hurt Glu even more putting even more emphasis on its inability to turn a profit. For a company that has a 52-week change of -50%, this would erode investor confidence and push down share values even more. However, if all goes as planned, Glu will have more revenue streams and increase the likelihood of getting that one big hit. Although still a risk, Glu might finally be worth considering.
Silvercorp Metals (SVM) - $2.47 (52-week low - $2.43, 52-week high - $6.86)
Silvercorp Metals is a Canadian mining company that extracts gold, silver, lead and zinc from mines mostly located in the Ying Mining District of the Henan Province of China. The company's stock is currently trading at or around its 52-week low and most of this downward pressure besides Thursday's big downturn is probably due to the prices of the commodities that it mines. Drilling samples and extractions from the HPG mine in China have come up with positive data and although investors might be wary of results coming out of China, the company went to extensive lengths to provide quality control in the core sample findings. Production costs for silver and gold hit Silvercorp strongly as a revenue decrease from $193 million (last year) to $148 million was just reported for the first nine months of this fiscal year. This seems drastic, but production was limited last year and commodity prices were higher. The good news for the future is that Silvercorp mined a record 237,000 tons of ore from the Ming District mines eclipsing a previous best of 206,000 from last quarter. The company is continuing to increase its production to remain competitive with the likes of Silver Wheaton (SLW) and when gold and silver take off again, the little guy should benefit, especially at this current valuation.
Silvercorp is priced to move higher at this current valuation and with mining operations ramped up any good news in precious metals should send the share prices soaring. It might be a different situation if Silvercorp was simply keeping up, but this company is doing all it can to ensure shareholders get value while maintaining its nice 3.4% dividend yield. This stock is down a ridiculous 55.35% from a year ago and is currently even down about 14% from its 50-day moving average of $2.87 a share. This company has a P/E ratio of 15.6 and a forward P/E ratio estimate of 4.43. Could some nice earnings be in store for 2014? The company has over $100 million in cash and no debt on the books and has good fundamentals to move it forward. Even if commodities don't make a significant move up, the stock is a pretty good bargain for a company with significant revenue and a dividend yield above 3%. That makes Silvercorp more than just a precious metals buy and should offer plenty of return for investors in the near term while the real spike might have to come later.
Arcos Dorados (ARCO) - $12.11 (52-week low - $10.53, 52-week high - $16.00)
Arcos Dorados? Yes, this is McDonald's (MCD) to the 20 countries it is licensed to franchise locations for in South America and Latina America. As McDonald's turns in numbers here in the U.S. that are turning away some investors, Arcos Dorados is sitting pretty with a potential marketplace of around 580 million people and a concept that has already proven to be successful. Every country might be different, but prospects of eclipsing 2,000 McDonald's locations in this region and even working toward doubling that figure are quite real. It is apparent that McDonald's and Arcos Dorados have the first-mover advantage in Latin America, but the question is whether the fast-growing populace and region will frequent the establishments in the manner they have here in the U.S. For many in this huge population, a trip to McDonald's is still a novelty and competition from low cost food vendors and small markets selling snacks, sweets and prepared goods is fierce. Will McDonald's be able to become a part of main street in these regions in much the same manner as it did here? I wouldn't bet against it, but to Arcos Dorados there are more issues at stake.
The good news is that Arcos Dorados has growth potential and does carry a dividend with a 1.8% yield. The major issue at hand is that the strength of the dollar against many of these other currencies has held most of the growth in check. One example that is typical of these growth limitations happened in Brazil as sales in this division were up almost 11%, while revenues actually decreased by $93 million. The first-quarter earnings for Arcos Dorados came in at a $.08/share loss while analysts were projecting a $.06/share gain. The revenue did beat analysts' estimates by logging $976.9 million versus estimates of $960.4 million. Again, the currency issues took a pretty big bite out of these results. Earlier this year, Venezuelan president Hugo Chavez ordered a 33% devaluation of his country's currency, which had a big impact on the 8.7% of Arcos Dorados revenues generated in Venezuela alone. Struggling currencies do little to help Arcos Dorados in revenue growth in addition to the perception that McDonald's is a flagship U.S. brand and a sign of the perceived wealth of the people of this country. Politics and government issues aside, there is room for this stock to climb and a long position now might pay huge dividends in the future. Imagine the position McDonald's was in around 1970 and think about the 560 million people this region represents.
Nothing can be considered safe in this current market downturn, but many of the obstacles are becoming more clear and more of a reality is starting to set in. That is when some potential can be uncovered and investing can be executed with a little less fear. Many people have bought into this market fear and when taking a look at the long list of devaluations, I get excited about making a move. Considering the crash of the last two days, this looks like an after-Christmas sale. What I like about these four stocks is that there is no fear of any of these companies going out of business any time soon and yet the valuations are ridiculously low. If you would like to invest with less risk, this gives you something to consider and consider right now.