Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.
Here’s a look at three fallen angels trading near their 52-week lows that could be worth buying.
Northern (under) exposure
No one ever said being an oil and gas driller was easy. Costs to build out a company, drill, and hire a workforce are huge, and if spot oil, liquid natural gas, and natural gas prices don’t cooperate relatively quickly, then the chances of success can be quite low. However, I think the market isn’t giving nearly enough credit to small-time Bakken shale player Northern Oil & Gas, Inc. (NYSEMKT:NOG), which has all the tools essential for long-term profits.
The allure of the Bakken shale region is that, among the numerous shale formations discovered over the past decade, it is among the most liquid-rich of all. In Northern Oil & Gas, Inc. (NYSEMKT:NOG)’ most recent quarter, it produced 11,115 barrels of oil equivalent, a clean 30% higher than in the year-ago period, of which 90.2% was oil. Northern Oil & Gas, Inc. (NYSEMKT:NOG) brought nearly 10 additional net wells online during the quarter and should continue to roll out new wells as its cash flow permits. The fact that Northern Oil & Gas, Inc. (NYSEMKT:NOG)’s production is heavily swayed toward oil is important, because oil tends to have more stable demand and fewer price fluctuations than natural gas, leading to healthier profits.
Another oft-overlooked factor in the Bakken is the use of rail transportation to bypass Cushing, Okla., to obtain better crude pricing. Brent prices in Louisiana are still considerably higher than West Texas Intermediate prices in Cushing. As Northern Oil & Gas, Inc. (NYSEMKT:NOG) grows its production, it may follow in the footsteps of Continental Resources, Inc. (NYSE:CLR), a big oil producer in the Bakken, which is shipping roughly two-thirds of its oil output past Cushing to Louisiana, paying the railroad company for shipping costs, and still pocketing the difference.
At just nine times forward earnings, this couldn’t get much cheaper.
Looking overseas for growth
It’s pretty safe to say that not all is well when it comes to growth rates in many developed countries. Most of Europe is struggling under nationwide austerity measures meant to curb government spending, China’s growth rate is running well below its 30-year average, and even the U.S. recovery is moving along at a slower pace than expected. One of the best ways to shield yourself from the downside associated with these stagnant economies is to look overseas for opportunities, which is why today the Aberdeen Chile Fund, Inc. (NYSEMKT:CH) has my undivided attention.
As you’ve probably gathered from the name, this is an ETF that invests in Chilean companies across a broad variety of sectors. Chile, while also experiencing a minor lull in GDP growth in its most recent quarter, has delivered year-over-year retail sales growth of 5.6% to 14.4% over the past 24 months, while unemployment is dancing near a decade low. This signals to me all the signs of a healthy economy driven by consumer spending, and it appears sustainable, with an extremely low inflation rate of just 1%.
That inflation rate wasn’t a big help for Banco Santander Chile , the fund’s third-largest holding, which is a large bank that’s inflation-sensitive and saw its net interest margin drop in its most recent quarter. However, many of the more important underlying fundamentals of Banco Santander Chile, such as loan growth and core deposits, increased year over year while net provision expenses for consumer loans dropped 3.8% year over year.
