The TSX Index has posted double-digit gains in 2019; however, not all companies have benefited from the rising tide. Some have struggled quite significantly, and are now trading at or near 52-week lows. Luke Wiley, author of “The 52-Week Low Formula” argues that investors who are looking for bargains should scour the 52-week low list.
The main argument is that stocks hitting lows have more sellers than buyers, the inverse of stocks hitting new highs. As a result, investors are most likely to find bargains.
However, not all stocks hitting lows are steals of a deal. Investors should target companies that are on strong financial footing and profitable. With that in mind, here are two stocks for your consideration.
Gran Tiera Energy
The oil and gas industry has been decimated this past year and Gran Tiera Energy (TSX: GTE)(NYSE:GTE) has been one of the sector’s hardest hit. Year to date, its stock is down a whopping 70%, hitting yearly lows daily since September. Now may very well be the perfect time to buy.
First, Gran Tiera has entered oversold territory. It has a 14-day Relative Strength Index (RSI) of 26; an RSI under 30 is a technical indicator that the stock is oversold. It’s now trading at a ridiculously cheap 4.5 times earnings and at only half book value (0.53).
After years of losses, Gran Tiera turned profitable in 2018 and is expected to remain in the black despite the challenging economic conditions. The company is a Colombia pure-play and as a result carries more risk than your average producer.
A perfect example of this is the second quarter production volumes, which where impacted by temporary blockades of its Southern Putumayo oil field that led to a downward revision to its full-year production guidance.
That said, once the current oil price environment stabilizes, it’s well positioned to rebound in a big way. Colombia remains relatively unexplored and there’s potential for significant discoveries. It also produces light oil, which commands a premium over heavy oil and benchmark WTI prices.
Cervus Equipment Corp
Cervus Equipment (TSX:CERV) is an industrial company that sells and services agricultural, transportation, and industrial equipment. It’s a leading distributor of John Deer and Peterbilt products.
The company has seen a rough couple of years, and its undeperformance has accelerated in 2019 as its share price has lost 36% of its value. Cervus has been mired in a multi-month downward trend that it’s been unable to escape.
Similar to Gran Tiera, Cervus has also recently entered oversold territory with an RSI of 28. It’s trading at only 8.7 times earnings and is also trading at only half book value (0.52). Notably, the company hasn’t been this cheap since the financial crisis and is trading at a 30% discount to its historical P/E average (11.46).
The company is very profitable, and although earnings are expected to dip in 2019, Cervus is expected to return to growth in 2020.
Cervus yield’s an attractive 5.33% with a small, two-year dividend growth streak. It last raised dividends by 10% this past March and the dividend is well covered by earnings (42%). Analysts have a one-year price target of $12.90 per share, which implies 60% upside from today’s price of $8.06 per share at writing.
