Tuesday, February 26, 2013

3 Stocks Near 52-Week Lows Worth Buying

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.

Settle your differences
Earlier this month the Department of Justice unveiled a lawsuit against McGraw-Hill (NYSE: MHP  ) subsidiary Standard & Poor's seeking $5 billion in damages for what it deems were highly inflated ratings on mortgage-backed securities when the situation would have dictated otherwise. The DOJ, in effect, is saying that S&P's ratings helped contribute to the eventual near-collapse of credit markets.S&P's peer, Moody's (NYSE: MCO  ) , appears to have escaped charges from the DOJ because a paper trail was never found that would implicate it in any wrongdoing. Since the lawsuit was filed, McGraw-Hill has lost about $5 billion in value -- and now appears to be the perfect time to buy.

While I rarely recommend diving into an embattled company in any industry, this seems like a no-brainer given that DOJ lawsuits are often settled out of court and, in most instances,�for less than the targeted amount. Even if the DOJ does get the full amount extracted via a court ruling, McGraw-Hill's value has already been depleted by that amount with very little effect to its long-term earnings or public image.

Based on even its reduced estimates, McGraw-Hill is valued at a reasonable 13 times forward earnings, is yielding 2.4%, and will likely grow by high single digits over the next couple of years. This seems like a reasonable gamble given the pessimism surrounding the company over the short term.

Can you NFC me now?
We investors really are terrible at predicting when a revolutionary technology will take off. This isn't to say that we aren't eventually right, but it took quite a bit of time before health care and Internet-based companies with revolutionary technologies in the late 1990s translated their products into profitable enterprises. The same can be said of near-field communications, or NFC, technology, which is expected (at some point) to replace credit cards as we use our phones to debit our bank or credit accounts. When, exactly, this revolutionary change will happen I'm not entirely sure, but I can tell you this: Dolby Laboratories (NYSE: DLB  ) is going to be a big winner.

Dolby currently licenses multiple technologies to the movie and entertainment industry for soundtracks, DVDs, PCs, and Blu-ray players, but its most valuable asset is its subsidiary known as Via Licensing, which owns a good chunk of all available NFC patents. This means that in almost every instance where NFC is utilized in a mobile device, Dolby will be receiving a royalty interest payment. Considering that there were 169.2 million smartphones sales to end users at the end of the third quarter of 2012, according to research firm Gartner, this leaves Dolby plenty of room for upgrades and replacements with its NFC licensing technology in the latter half of this decade.

I know it might seem difficult to gaze so far down the horizon, but these patents, at least in my view, are so valuable that Dolby could be worth double or triple its current price by 2020.

MYDAS touch
You know that pullback in mobile marketing advertisers that I've been waiting for? Well, say hello to Millennial Media (NYSE: MM  ) , the name behind the MYDAS advertising technology platform. MYDAS allows advertisers to display everything from banner ads to videos through its platform, and naturally, with everything moving toward smartphones and tablets, it's mobile-based.

What we've found in recent months is that mobile advertising growth is still in its infancy and enterprises tend to be quite fickle with their spending. Millennial Media recently offered up full-year sales guidance of $270 million to $280 million versus the Street's estimate for $290.1 million, which caused its stock to plunge by a third. Similarly, Velti (NASDAQ: VELT  ) , a peer to Millennial Media in mobile marketing, saw its shares tank late last month after it failed to provide full-year guidance and announced a divestiture of its assets into slower fee-collecting businesses.

However, just as this pessimism exists in the near term, it's given investors an opportunity to position themselves with a potential mobile advertising giant in the future. With the mobile space still very fluid and expanding rapidly, smaller companies like Millennial aren't bound by the vice grip that Google holds over the PC-ad market. Based on it and the Street's revenue estimates, Millennial Media is slated to grow revenue by 56% in 2013 and 47% in 2014. Those are growth figures that'll translate into bottom-line profits by mid-decade and should make Millennial a mobile advertiser to reckon with in a couple years.

Foolish roundup
This week's theme is about thinking beyond the horizon. Although we may be terrible predictors of revolutionary technology or may allow our emotions to get the best of us at times, the long-term trends point in favor of all three companies discussed here.

I'm so confident that these three names will bounce off their lows that I'm going to make a CAPScall�of�outperform on each one.

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