New Lows list holds some gems
Don't try to catch a falling knife, warns an old stock market saying.
I do it often.
One place I look for stocks to buy is on the New Lows list, a roster of stocks selling for their lowest price in 52 weeks. You can find the list in various places. I usually get it from Barron's weekly or the website Barchart.com.
Why buy a stock that's been declining? For one simple reason: The aim of the investment game is to buy low and sell high. A stock that has hit a 52-week low could be a putrid company, of course — or it just might be a bargain.
This is the 20th column I've devoted to this subject since 1998. The average three-year return for my picks from the New Lows list has been 20.78 percent, compared with 12.75 percent for the Standard & Poor's 500 Index.
Those numbers are total returns, including reinvested dividends, for the 16 periods in which three-year returns can be calculated.
The one-year returns have been undistinguished, averaging 6.96 percent in 18 tries, against 9.35 percent for the S&P 500.
These results suggest that if you want to bargain hunt among 52-week lows, you had best be prepared to stay invested for a longer time than some investors want.
My picks from a year ago advanced about 13 percent, weak compared with the 23 percent total return for the S&P 500. Apple Inc. (AAPL) did well, up 25 percent. Cubic Corp. (CUB) returned 19 percent, Apache Corp. (APA) 10 percent, and Coach Inc. (COH) zero.
The latest three-year result is for my selections from March 2011. Unfortunately, Cisco Systems Inc. (CSCO), General Motors Co. (GM), and Dreamworks Animation SKG (DWA) all trailed the market. The average return was 18 percent, which was particularly bad compared with the S&P's return of 52 percent.
Luckily, the long-term results are better than the latest results.
And so, I go forth with three new picks.
Atlas Air Worldwide Holdings Inc. (AAWW), based in Purchase, N.Y., leases aircraft and crew to freight carriers and the military. Analyst opinion is all over the place, as the company garners every possible rating from strong sell to strong buy.
My own opinion is “buy.” The stock is extremely cheap, at eight times earnings, 0.6 times book value (corporate net worth) and 0.5 times revenue. Operating results haven't been too bad, with eight consecutive profits since the company emerged from bankruptcy in 2004; the year just concluded should make nine.
Granted, Atlas doesn't churn out consistent profit increases. Earnings are choppy and were down in 2013. But at current valuations, I think the risk-reward ratio is favorable.
Campus Crest Communities Inc. (CCG) of Charlotte builds, owns and manages student housing projects. It has 70 properties, some owned and others partly owned. When 10 properties are complete, it will be providing housing for about 43,000 students.
As with Atlas, analyst opinion is divided: There are four buy ratings and five “hold” ratings on the stock.
One reason I side with the optimists is that two corporate officers — Donald Bobbitt Jr., the chief financial officer and Robert Dann, the chief operating officer, both bought shares last summer at prices higher than the current $8 to $9 a share.
I also like the dividend yield, which is near 8 percent. The company is a real estate investment trust (REIT), which is not taxed at the corporate level so long as it pays out at least 90 percent of profits as dividends.
China Telecom stock (CHA) has made almost no net progress for close to five years. It is down about 14 percent this year, to about $43 from near $50. China Telecom is the No. 3 wireless company in China, and lately it has been losing the battle for new customers to its larger competitors China Mobile and China Unicom.
At the present price, I find the shares attractive. It sells for less than book value, and for 0.7 times revenue.
I came close to being lynched by my clients (not literally, I hope) in 2011 when a couple of Chinese investments went awry. But I don't think it's sensible to ignore the world's second-biggest economy.
As China's economy continues to develop, I believe the demand for telecommunications will continue to grow. China Telecom's revenue has grown by leaps and bounds the past couple of years, to $45 billion from $33 billion.
Profits have been stuck near $8 billion. But analysts expect per-share profits to rise about 17 percent this year, to $3.95 a share from about $3.37 in 2013.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at email@example.com.
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