After a golfer such as Tiger Woods first rises to prominence, he is naturally widely, and correctly, expected to continue to be an elite golfer season after season. Students who excel in school are expected to continue with scholastic success over the course of their lives. Even in the relatively fickle world of art, musicians and artists who successfully master their craft are virtually never regress to a lower level of talent, even if their commercial success eventually wanes.
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Leaders Become Laggards
In the stock market, however, this logical train of thought is not very useful. Once a company comes to dominate its industry, even for a short period of time, most of its competitors will readily adopt whatever methods provided it with its advantage. Indeed, over the long term it is exceptionally difficult for a company to maintain an economic moat.
As well, once a company achieves success, it can quickly become prone to overvaluation by market participants, who believe the company'' good fortunes will continue much longer than they end up actually lasting. As such, good companies can end up being priced like they are absolutely outstanding companies, which means that eventually they will have to offer less-than-stellar returns for their prices to revert to a more accurate valuation.
Losers Become Winners
The reverse can occur as well. Stocks that temporarily stumble can be driven too far down in price in the short-term, thus setting the stage for market-beating returns as their valuations eventually correct to the appropriate level.
For individual investors, the goal is to attempt to avoid paying too much for last year's winners, only to see them end up as laggards in your portfolio, and instead try to pick up a few of last year's losers before they eventually become part of the next batch of winners. With that in mind, here are five stocks that are near the bottom of their 52-week range, yet also are expected to produce positive earnings growth going forward.
|Company||Current Price||52-Week Low||Forward P/E|
|Intel Corporation (Nasdaq:INTC)||$18.90||$18.31||9.0|
|Diodes Incorporated (Nasdaq:DIOD)||$16.26||$15.01||9.3|
|Thompson Creek Metals Company (NYSE:TC)||$8.97||$8.03||6.1|
|TTM Technologies (Nasdaq:TTMI)||$8.53||$8.25||7.0|
|Data as of market close, August 20, 2010|
Intel's Time Again?
Trading north of $24 a share as recently as April of this year, the market has steadily sold off shares of Intel in recent months, with the stock most recently closing below $19. Not only is this near the 52-week low for this stock, but it is also approaching something of a 10-year low as well. In fact, the stock has traded above the $20 mark for the majority of the past decade.
While the most recent economic downturn of course greatly affected the cyclical semiconductor industry, Intel business operations appear to have been turned the corner. For its fiscal year 2010, the company is expected to tally $44.6 billion in sales, which would represent a 27.1% off its 2009 sales volume.
Assuming its 2010 year-end comes in as expected, this would make 2009 its worst sales year in the past four years, while 2010 would be its best. With analyst consensus estimates currently pegging the company's sales to grow further in 2011 to $47 billion, at this point it seem likely that Intel's share price will have to eventually reverse course as well.
The Bottom Line
While picking winning stocks tends be counterintuitive, compared to most other areas of life, this does not have to be a disadvantage to individual investors who understand this reality. A proven performer such as Intel could be just that sort of turnaround story in the making, as it has been driven down to levels near its 52-week low, yet still harbors positive earnings growth expectations. (To learn more about turnarounds, see Turnaround Stocks: U-Turn To High Returns.)
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