We recently compiled a list of the 18 Best 52-Week Low Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where Arch Resources, Inc. (NYSE:ARCH) stands against the other 52-week low stocks.
Buying low and selling high is a popular investment strategy that value investors inspired by Warren Buffett have perfected over the years. The legendary investor has consistently emphasized the importance of identifying stocks of undervalued companies with significant growth prospects and holding onto these investments for an extended period.
Some of the most undervalued stocks to buy are those trading near their 52-week lows, backed by solid underlying fundamentals. A lot of these companies have durable competitive advantages but have fallen due to an overreaction by pessimists to short-term headwinds. The companies should boost strong brands in their respective fields with high barriers to entry.
READ NEXT: Top 10 ADR Stocks To Buy According to Hedge Funds and 8 Best Wind Power and Solar Stocks to Buy.
Value investing means paying attention to more than just the stock price but by focusing on valuation. A pullback often creates buying opportunities where quality companies become available at low price-to-earnings multiples or low price-to-sales ratios relative to their industries.
Over the past 20 years, 95% of investment firms have failed to beat the S&P 500. In contrast, Buffett has averaged an annual return of 20%, nearly double the S&P 500 over the same period.
With the S&P 500 up by about 20% for the year, most stocks are trading at premium valuations above their 52-week highs. The impressive gains have come amid unfavorable market conditions, with interest rates near all-time highs of between 5.25% and 5.50%.
On the other hand, some stocks have pulled back significantly and are currently trading close to the 52-week lows, their core business hurt by the high interest rate environment. Additionally, some of the stocks have underperformed due to deteriorating macroeconomics. Concerns that the U.S. economy could plunge into recession have always hurt some of the stock’s sentiments. The U.S. Federal Reserve is expected to cut interest rates in September and these stocks might not be near their lows for long.
According to Stuart Keiser, Citi head of equity trading strategy, the high interest rate environment has left the market in a very unstable situation amid a “ tricky environment.” Likewise many investors are on edge as to whether there will be a soft or hard landing. Keiser said, in an interview on CNBC’s Fast Money:
“Basically you had a 12 to 18 month period of positive economic surprise of what I would call higher for longer growth strong rate cuts getting pushed out. Markets were able to deal with that because growth was really positive. Since late June economic data surprised negative, economic data momentum negative. The market is now trading instead of higher for longer trading, a bit of growth slowdown. That’s why you are getting this schizophrenia because as growth decelerates you get into a borderline at which the risk becomes really big that you could go hard landing instead of soft landing. So our view is that the risk reward is not what it was a couple of months back”
Amid the market outlook uncertainty, focusing on stocks near the 52-week lows is a sure way of balancing the risk reward amid the premium valuation in play. While the focus has been on artificial intelligence investment plays, stocks in various sectors are trading at discounted valuations and are sure to offer significant returns.
Our Methodology
To compile the list of the best 52-week low stocks to buy now, according to short sellers, we first screened for stocks that were trading near their 52-week lows (0-10% range) using the Finviz stock screener. Next, we looked at their short interest and picked the stocks with the lowest short interest that were the most popular among elite hedge funds. The stocks are ranked in descending order of their short interest.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A coal miner working in a surface mine, wearing a hard hat and carrying a pick.
Arch Resources, Inc. (NYSE:ARCH)
52 Week Range: $116.44 – $129.09
Current Share Price: $126.98
Number of Hedge Fund Holders: 38
Short interest rate: 5.18%
According to short sellers, Arch Resources, Inc. (NYSE:ARCH) is one of the best 52-week low stocks to buy now as a basic materials company engaged in the production and sales of metallurgical products. The company owns and controls long-term leases of coal land in Ohio.
The company has inked a $5 billion deal with Consol Energy to create North America’s largest coal mining company. The combined company should have an export capacity of 25 million tons annually across two terminals.
While there have been concerns about tight emissions regulations on the coal industry, Arch Resources, Inc. (NYSE:ARCH) should be able to export 67% of its pro forma value to fast-growing Asian markets, safeguarding its revenue base.
The company overcame logistical challenges in the second quarter by shipping a record 2 million tons of coking coal. It also achieved record production levels from its metallurgical segment. Ultimately, it posted a net income of $14.8 million, down from $77.4 million a year ago. Revenues totaled 4608 million from $757 million a year ago.
Arch Resources, Inc. (NYSE:ARCH) ‘s financial results were significantly impacted by the short-term closure of the Baltimore port, which serves as a crucial distribution center for Arch Resources. Moreover, the demand for metallurgical coal, essential for steel production, saw a price drop, adding to the challenges faced in the third quarter. However, Arch Resources assured that its production and cost goals for the year 2024 are still achievable.
Furthermore, the company achieved considerable milestones in lowering its debt, enhancing its liquidity, and buying back its own shares. It paid down an incremental $12.5 million debt, bringing its debt level to $133.3 million with a net positive cash position of $146 million.
The stock trades at a Price-to-earnings (P/E) ratio of 9.12, suggesting it might be undervalued relative to its earnings. Additionally, Arch Resources, Inc. (NYSE:ARCH) ‘s Price-to-book (P/B) ratio over the same timeframe is 1.6, indicating that the stock’s market value appears to align with its book value. The percentage of shares outstanding short as of the end of July stood at 5.18%
As of June 2024 end, 38 out of the 912 hedge funds surveyed by Insider Monkey had held a stake in the company. Arch Resources, Inc. (NYSE:ARCH)’s largest hedge fund shareholder is Mohnish Pabrai due to its $59.73 million stake.
Here is what Black Bear Value Partners said about Arch Resources, Inc. (NYSE:ARCH) in its Q2 2024 investor letter:
“Arch Resources, Inc. (NYSE:ARCH) and Warrior are 2 of the leading U.S. producers of high-quality metallurgical coal (“met coal”). This is the kind of coal used for steelmaking. ARCH also has a small thermal coal business that contributes ~20% of their earnings. Each company is independently a top 5 position meaning coal is a meaningful percentage of our assets.
Both companies are largely export driven producers. For example, Warrior exports 97% of their production. Both have a large cost advantage as they can ship to Europe and South America in ~2 weeks versus Australian competition of ~5 weeks.”
Overall ARCH ranks 15th on our list of the 52-week low stocks to buy now according to short sellers. While we acknowledge the potential of ARCH as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARCH, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.