Almost every company faces major challenges sooner or later, that is just a part of being in business. Investors often sell their shares as soon as any problems arise and the stock price in these companies can drop well below their long-term fair value. Often these challenges can be overcome with time and solid decisions from management. Buying stock in companies facing shorter-term challenges can give longer-term investors a great opportunity for cheap shares. These stocks all appear to be presenting investors with what could be classic "buy low" opportunities, and a chance to double their money or more. Here are a few stocks that are facing challenges (many of which are based on a lack of investor confidence) that might be overcome, and based on much lower current valuations, could rebound in 2012:
Corning Incorporated (GLW) shares are trading at $13.08. Corning makes a variety of products ranging from touch screen glass to fiber optics. Theshares have traded in a range between $11.51 to $23.43 in the past 52-weeks. The 50-day moving average is $14.01 and the 200-day moving average is $16.60. Earnings estimates for GLW are at $1.78 per share in 2011, and $1.71 for 2012, so the PE ratio is about 7 on these shares. The book value is $13.56 per share. Corning makes and supplies Apple with the glass touch screens used in many tablet devices and cell phones. This company pays a dividend of 30 cents per year, which is equivalent to a 2.3% yield. Corning has a strong balance sheet and can easily wait out the challenges of a slower global economy. This stock has plunged with the markets and now offers a chance to buy at bargain levels if you are a long-term investor. Short-term gains are also likely once tax-loss selling is over, since this stock is trading for almost half of the 52-week high.
Hewlett Packard (HPQ) shares are trading at $25.84. HPQ is a leading technology company with products ranging from computers to printers. The 50-day moving average is $26.56 and the 200-day moving average is $32.23. These shares have traded in a range between $21.50 to $49.39 in the last 52 weeks. Earnings estimates for HPQ are at $4.08 per share in 2011, and $4.47 for 2012. This gives HPQ a super low PE ratio of only about 6. HPQ pays a dividend of 48 cents per share which is a yield of 1.9%. With a PE ratio of 6, chances are these shares have hit rock bottom and are a solid long-term buy. Since the stock is trading at close to half of the 52-week high, many investors are probably selling HPQ shares to harvest tax-losses. I would consider buying this stock on dips, in particular for possible gains in January, and for a double in the long-term.
E-Commerce China Dangdang (DANG) shares are trading around $4.23. Dangdang is based in China and is often likened to be the Amazon.com (AMZN) of China. These shares have fallen from a 52-week high of $36.40. The 50-day moving average is $5.48 and the 200-day moving average is $13.04. DANG shares have been cut by more than half since the market started to correct in early August, but the potential of this company is still just as strong. Revenue is now growing at about 50% annually and that is expected to continue for many years. The cash on the balance sheet of about $257 million is equivalent to around $3.25 per share, so the stock is trading just barely over cash value. When expectations for DANG were high (shortly after the initial public offering) the stock was trading for about $36, now expectations are extremely low and the stock is a bargain around $4 per share. This stock is one my top picks for a January rebound, which will be fueled by short covering and the end of tax-loss selling. Investors are way too bearish on China and China-based stocks and this is providing what could be a once in a lifetime buying opportunity for patient investors who can see beyond the extremely negative short-term pessimism. This stock can easily double when more reasonable views on China emerge.
Renren, Inc. (RENN) is trading at $3.45. Renren is a social networking company in China. Many call it the "Facebook" of China. The 52-week high is $24, so this stock has been severely punished and is now scraping the bottom at the end of 2011. RENN has a market capitalization of about $1.35 billion and a enterprise value of only about $157 million due to the cash on the balance sheet of roughly $1.2 billion. The cash on the balance sheet of about $1.2 billion is equivalent to around $3.05 per share, so the stock is trading just barely over cash value. In addition, the company has no long-term debt.
Reports have put the value of Facebook at around $75 to $100 billion, and that makes buying RENN with a enterprise value of about $157 million a ridiculous bargain. The largest social networking site in China (the most populous nation in the world) has to be worth more than just 1% of Facebook and this stock should see a boost when Facebook goes public. Investors are foolishly dumping this stock now for tax loss purposes and this is giving long-term investors what could be a once-in-a-lifetime buying opportunity. There are probably a number of companies that might view RENN as an attractive takeover target due to the incredibly low valuation and extremely high cash levels on the balance sheet. This stock could double if the Facebook IPO goes well in 2012.
Baidu (BIDU) shares are trading around $114.52. Baidu is a leading Internet search site in China. The 50-day moving average is $130.96 and the 200-day moving average is $135.31. Earnings estimates for BIDU are $2.94 per share in 2011, and $4.39 for 2012. The 52 week range is $94.33 to $165.96. Baidu shares are trading well below the 52-week high, and at more reasonable valuation levels. The Chinese economy is facing short-term headwinds, but the future growth potential remains extremely strong. It makes sense to buy when so many others are pessimistic, and this stock could double in a couple of years.
Netflix, Inc. (NFLX) shares are trading around $69.82. Netflix is a leading Internet site for movie rentals. The 50-day moving average is $85.82 and the 200-day moving average is $195.09. Earnings estimates for NFLX are $4.11 per share in 2011 and only 6 cents for 2012. However, earnings estimates could be reduced, as many subscribers have canceled their service. The 52-week range is $74.25 to $304.79. Netflix is the poster child for what can happen when investor greed meets with the reality that valuation matters, management can make unforeseen mistakes, and business models change. However, there is always a chance for a turnaround, and Netflix shares have shown signs of stabilizing around the $70 level which could be a sign that it is ready to rebound when tax loss selling is over in January. This is the least likely candidate here to double in price, but it is possible if management executes well.
Data sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.