As the market tumbles over the prospect of a weak jobs report, an unstable Europe, and a cooling China growth machine, the world appears poised for a global downturn. Yet for contrarian value investors such a time period often suggests that a buying opportunity may once again come forth. Those now preparing a pile of cash to buy up undervalued assets should also begin to stockpile investment ideas and understand the current situations surrounding every potential acquisition. For some companies, the sell-off has already begun. The following list takes a look at a few stocks trading near their 52-week lows and considers the situation they find themselves in today.
|Name||Market Cap||52-Week % (Loss)||Industry|
|ArcelorMittal (MT)||$20.9 Billion||(57.87%)||Steel & Basic Materials|
|DryShips (DRYS)||$806 Million||(46.06%)||Shipping & Offshore Oil Drilling|
|First Solar (FSLR)||$1.02 Billion||(89.91%)||Utility-scale Solar Power|
As a vertically integrated steel and mining corporation with global operations, ArcelorMittal is the leader when it comes to what it does. Yet as the possibility of another recession continues to linger, the company's stock has continued to lag. Tied to a strong association with industrial growth, like most steel operators the company has failed to gain much shareholder support in the midst of uncertain times. Fears of overvalued assets, lumbering debt, and general uncertainty over the markets it operates in have flamed a multi-year sell off that leaves the company currently trading at a price-to-book ratio of 0.37.
Nevertheless, the company has continued to perform even over the worst of years. In 2009, the company still earned a net income of $114 million, and even paid quarterly dividends that amounted to 0.75/ADS. Most importantly, the company has begun to shed non-core assets in an attempt to shore up its balance sheet. In late May, the company sold Skyline Steel to Nucor (NUE) for roughly $605 million. With a current ratio of 1.58, book value of $37.06, and a forward dividend yield of 4.7%, investors should consider ArcelorMittal as a prime recovery candidate.
Like a vessel tossed aside by the oceans currents, DryShips has continued to lag the market with an onslaught of bearish sentiment for many reasons. As seen in the graphic below, time charter rates for shipping have never come close to seeing any resemblance of a recovery. The ill-timed arrival of a large supply glut many years in the making by heavy ship manufacturers have also continued to wreak havoc on the industry. The uncertainty of operating out of Greece has done little to calm the nerves of investors. Last of all, the questionable decisions of management have never faded out of the minds of most shareholders of this company.
Yet for all its concerns, the company still remains a head above water when it comes to outlasting the competition in at least one regard. Its decision to diversify into offshore drilling through its subsidiary Ocean Rig (ORIG) has proven to be a wise endeavor that has offset the falling incomes of its dry bulk shipping fleet. The ability to spin off the asset and even tap into its value through the selling of ORIG shares have allowed for welcome liquidity to help support the balance sheet. Nevertheless, investors looking for a safer play in a dry bulk shipping recovery may wish to turn their eyes to the likes of Diana Shipping (DSX) - a company who's balance sheet is second to none in the industry. Dryships remains a volatile recovery investment for those who enjoy heavy risk along with the prospect of above average returns.
To say that fear exists in the solar market is an understatement when it comes to leading thin-film solar panel manufacturer First Solar. While the company stands practically unrivaled in the niche field of thin-film technology, adverse market conditions and subsidized Chinese polysilicon markets have inevitably placed crystalline silicon solar module rivals on much higher ground. The very rate of the cost decline has put First Solar's ability to compete into question. First Solar was also coerced into closing its German operations in light of ongoing uncertainty in the European market. Yet as the company's business model retreats into the utility scale sector, it falls back onto its leading advantage when it comes to its low balance of systems costs.
While the market may be comfortable in discounting First Solar to the degree that it has, the simple question of value really comes down to whether or not the company can survive its current dilemma. The new business strategy appears viable, especially as First Solar continues to profit from its current projects while its rivals continue to struggle. Yet, the possibility of another bomb lies just around the corner. Delays on the company's current projects have also raised concerns over whether or not a regulatory bottleneck will force the company to buy back its sold projects. Such a disaster would have a devastating impact on the company. The stock was cheap at $30/share, and its only cheaper now at the last price of $11.77 should this issue be passed up. Nevertheless, ambitious value investors may wish to wait until the regulatory problem clears up before considering the company as a viable investment.