3 Value Stocks Near 52-Week Lows Worth Buying

By Markets Fool.com

While many companies are risingpast their fair values, others are trading at potential bargain prices. Although many investors would rather have nothing to do with stocks wallowing at 52-week lows, it makes sense to see whether the market has overreacted to a company's bad news.

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Here's a look at three fallen angels trading near their 52-week lows that could be worth buying.

Don't leave home without it
Instead of earnings season providing an impetus to send shares higher, much of the financial sector has been maligned by fourth-quarter results. Credit and charge company American Express is one such company.

Source: TaxRebate.org.uk via Flickr.

For the fourth quarter, American Express delivered 7% revenue growth to $9.11 billion and an EPS increase of 15% to $1.39. On the surface that might sound pretty darn good, but it was only good enough to meet the high expectations of Wall Street analysts. What Wall Street focused on instead was the 11% increase in its U.S. credit card segment expenses and its announcement that it would be cutting 4,000 jobs this year. Higher U.S. expenses could signal more competition for high-income individuals in the U.S., while job cuts may be further admission that American Express needs to step up its marketing to gain and retain these customers.

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In spite of Wall Street's displeasure with American Express' cost-cutting plan and rising expenses, I believe it could be quite the bargain for value-seeking investors.

For starters, America Express gets the pleasure of double-dipping when the U.S. economy is growing. By double-dipping I mean it gets to charge its credit card holders an annual fee or interest on carryover balances, while also collecting payment-facilitating fees from its merchants. Not all payment processors are lenders as well, but AmEx is one of those rare companies that gets to double dip and really pad its margins when the times are good.

Source: HM Revenue & Customs via Flickr.

AmEx has also been making a push into the lower-income and middle-class market with the introduction of prepaid debit cards. The prepaid market is beginning to get a little crowded, but American Express' well-known brand name, coupled with mid- to high-single-digit growth opportunities in the U.S. prepaid market, should translate into beefier profits.

Lastly, consumers' spending habits would suggest that AmEx has further upside. Full-year, card-billed business totaled $1.02 trillion dollars (compared to $0.95 trillion in 2013), while AmEx reported five million more cards in use. In other words, consumers keep spending, which, as long as they pay their bills on time, is great news for AmEx.

With a forward P/E of 13 and a dividend yield of 1.2%, I suspect there's plenty to like about this value stock.

Keep on trucking
Speaking of fourth-quarter earnings reports that didn't please investors, up next for consideration we have heavy-duty engine and engine-related components manufacturer Cummins .

For the quarter, Cummins reported an 11% increase in revenue to $5.1 billion and net income of $444 million, up slightly from the $432 million profit reported in the year-ago quarter. Altogether this worked out to an adjusted $2.44 per share profit. Comparably, both figures exceeded Wall Street's consensus.


Source: Flickr user Ryan Hoist.

However, the wheels fell off the wagon when Cummins announced its 2015 guidance, which needless to say was a far cry from what it had originally forecast in prior months. Current forecasts call for 2%-4% revenue growth in 2015, implying $19.6 billion-$20 billion in revenue. Previously Cummins had suggested that it would generate $20 billion-$23 billion in full-year revenue in 2015. Cummins noted the need for its tempered forecast given the strength of the U.S. dollar, which hurts its overseas operations, and weakened growth prospects in Europe.

I certainly won't argue with management that Europe's outlook is cloudy or that the U.S. dollar has been a monster. But there are other factors at work here that investors should consider.

To begin with, investors should stop focusing on currency moves as a factor in their decisions. Yes, changing foreign currency back into U.S. dollars could result in less revenue for Cummins, but it would not be a true reflection of the company's business model. As the company noted, demand in China and for on-highway products in North America drove it to record revenue in 2014. In other words, Cummins is executing just fine from a business perspective.

Cummins 5.0L V8 Turbo Diesel engine. Source: Cummins.

Another factor not being discussed is fuel prices. Lower fuel prices, for the time being, could encourage businesses to continue running older model trucks rather than upgrading. That could also be playing a role in Cummins' perceived-to-be-weak forecast. But I don't see oil prices staying this low over a long period of time. Global energy demand is on the rise, and over the long run higher oil prices will encourage the switch to newer and more fuel-efficient vehicles outfitted with Cummins' engines.

Lastly, don't forget that emerging markets like China, India, and other growing nations have the opportunity to buck global weakness. This is important, as roughly half of Cummins' business is derived from international markets.

At just 12 times forward earnings and with a PEG ratio that's fallen below one -- not to mention a 2.3% yield -- I'd suggest this value stock could be ready to hit the gas pedal sooner rather than later.

Grinning and "bearing" it
Finally, I'll keep your eyes focused on the industrial sector and give you a brief synopsis of why I believe bearing, transmission, and gearbox manufacturer Timken deserves the attention of value investors.


Source: Timken.

Similar to AmEx and Cummins, Timken's guidance failed to excite investors. For the fourth quarter, Timken announced a 2% increase in sales to $762.2 million and an adjusted $0.43 in EPS, up from $0.35 in the year-ago quarter. Like our previous examples, these results were perfectly acceptable to investors.

Looking ahead, though, Timken announced a cautious view of 4% organic growth that will largely be eaten away from negative currency translation. Overall, mobile industry sales are projected to be flat or fall up to 2% because of currency changes, while process industries should see a 2%-4% increase in sales with foreign exchange rates included. This investors didn't much care for.

But, like with the other companies under consideration, there's little need to panic -- a strong U.S. dollar is not going to harm Timken's business model over the long run. In fact, if we remove any currency fluctuations and just look at things on an apples-to-apples basis, Timken is forecasting 4% organic growth and 6% earnings growth in 2016. This comes on top of 5% organic adjusted sales growth in 2014.

Source: Timken.

Timken has been doing everything shareholders could ask for over the past couple of quarters. It's kept its expenses under control -- selling, general, and administrative costs fell 2% in Q4 from the prior-year quarter -- it's growing organically because it's seeking out emerging markets, and it's repurchasing its own stock to make its valuation look more attractive to investors.

Timken is also an intriguing play on continued global growth. This isn't to say it may not find weakness in certain industrialized markets such as Europe, but overall global growth continues to tick higher. This is a cyclical name that's going to benefit if emerging markets and most industrialized nations are exhibiting signs of growth.

A forward P/E of 12 and a dividend yield of 2.5% are just icing on the cake for value stock investors.

The article 3 Value Stocks Near 52-Week Lows Worth Buying originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of, and recommends Cummins. It also recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.