I attended talk years ago by Robert Rodriguez of FPA Capital, and he talked about using the list of stocks trading at 52-week lows as his shopping list. I’m fond of that approach because it makes more sense to buy stuff that’s on sale than stocks that are hitting new 52-week highs and have fallen under the control of the momentum crowd.
The 52-week low list is one of the first things I check when I want to see if any interesting companies are becoming potential bargains.
But 52-week lows were not enough for legendary investor Walter Schloss. Mr. Schloss, who returned on average about 20% annually for an incredible 47 years for his investors, left behind a list of 16 factors he thought were needed to make money in stocks. No. 10 on the list was this:
“When buying a stock, I find it helpful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. [But three] years before the stock sold at 20 which shows that there is some vulnerability in it.”
He liked stocks trading below book value at long-term lows that might finally be ready to turn the corner.
It is an easy screen to run in a search for potential bargains. There are some interesting names on the list that are worth considering by long-term investors.
Cheap Stocks to Buy
It should come as no surprise, given the recent weakness in the sector, that energy stocks are will represented on our list. Apache, (APA), Rowan (RDC) and Tidewater (TDW) are all trading below book value and near 3-year lows. With TDW stock trading at 70% of book value, I find Tidewater particularly interesting. The company provides marine transport services to offshore drillers. Tidewater hauls supplies and personnel out to the rigs and help position rigs offshore using their vessels. The company is profitable this year and should be next year as well. Even better: Tidewater pays a 2.72% dividend. Business may be slow until oil prices firm up, but on an asset basis this stock looks very cheap.
California First National Bank (CFNB) is banking and leasing firm located in Irvine, California. The bank takes deposits, but its primary business is leasing and financing capital assets for businesses. CFNB finances things like computer systems, medical devices and systems and tracking systems. On the non-technology side of the business, it also leases things like mining equipment, school buses and office furniture. Business is a little slow with the weak economy but this is a solid company that has been around since 1977, and California First National should do very well as the economy expands.
Shopping the 3-year low list is a good way for contrarian, value-oriented investors to look for cheap stocks with the potential for a huge rebound.
As of this writing, Tim Melvin was long RDC.