Businesses in similar sectors face many of the same macroeconomic headwinds. Thus, whenever there are particularly strong factors affecting the profitability of certain areas of the market, there is a greater chance that value opportunities will appear in those areas.
The GuruFocus screener of 52-week lows shows stocks that are trading near their 52-week lows, are owned by Gurus and were bought by insiders. The screener displays the stocks by industry, so by referring to the ratio of companies trading near their 52-week lows to the total number of stocks in the industry, you can see which industries have seen their prices take a beating lately.
As of Feb. 10, some of the most downtrodden sectors include “Oil & Gas” with 49% of its stocks trading within 10% of their 52-week lows, “Retail – Defensive” with 33% of its stocks trading within 10% of their 52-week lows and “Beverages – Alcoholic” with 42% of its stocks trading within 10% of their 52-week lows. Here are three companies in these sectors that have a lot going for them, despite industry headwinds and low valuations.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Occidental Petroleum Corp.” data-reactid=”20″>Occidental Petroleum Corp.
Occidental Petroleum Corp. (NYSE:OXY) is Houston-based oil and gas exploration and production company with facilities in the United States, the Middle East, Latin America and Africa. Among major fossil fuel producers, Occidental ranks first in terms of CO2 EOR (carbon sequestration and reuse) projects.
As of Feb. 10, Occidental has a market cap of $31.13, a price-earnings ratio of 26.36 and a price-book ratio of 1.37. GuruFocus has assigned the company a financial strength score of 3 out of 10 and a profitability score of 7 out of 10. Over the past year, share prices have dropped 56.84% to trade 8.5% above the 52-week low of $37.25.
Occidental acquired Anadarko Petroleum Corp. for $55 billion during the 2019 third quarter, which some analysts considered a mistake. It increased the company’s debt to dangerous levels; Occidental’s Altman Z-Score is at 0.77, meaning it may have trouble meeting its long-term debt obligations. However, its current ratio of 1.33 suggests that it can meet its short-term debt obligations.
President and CEO Vicki Hollub remains positive that the combined companies can realize significant cost savings thanks to the merger, saying in a statement, “We expect to deliver at least $3.5 billion annually in cost and capital spending synergies and the focus of our Board and management team is on execution to achieve the promise of this exciting combination. We look forward to updating the market on our continued progress in the months ahead.”
The market has not yet seen the full effects of the Anadarko acquisition on Occidental’s top line. If the revenue boost and synergy are high enough, the stock price’s decline could mean that it is trading at an attractive valuation. One promising sign is that the acquisition contributed to a $1.2 billion revenue improvement compared to the quarter preceding it.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Natural Grocers by Vitamin Cottage Inc.” data-reactid=”48″>Natural Grocers by Vitamin Cottage Inc.
Based in Lakeford, Colorado, Natural Grocers (NYSE:NGVC) is a natural grocery store and vitamin chain with 159 locations in the U.S. Founded in 1955, the company is dedicated to only providing high-quality natural foods, even going so far as to making publicly available lists on the ingredients that they won’t sell and why.
As of Feb. 10, Natural Grocers has a market cap of $199.93 million, a price-earnings ratio of 22.28 and a price-book ratio of 1.25. It has a GuruFocus financial strength rating of 3 out of 10 and a profitability rating of 7 out of 10. Over the past year, share prices have dropped 37.79% to trade 8.9% above the 52-week low of $8.19.
Over the past three years, Natural Grocers has grown its revenue at 8.5% per year. The company has been in an expansion phase ever since its initial public offering in July of 2012.
One of the biggest tailwinds for Natural Grocers is that it has an opportunity to take advantage of a niche market that competitor Sprouts Farmers Market (NASDAQ:SFM) has begun to abandon. A few years ago, there were two main players in the health food grocery and vitamin space – Sprouts and Whole Foods. Sprouts offered low-priced groceries, vitamins, beauty products, etc. while Whole Foods offered more premium brands of the same goods at higher prices.
However, this competitive space shifted when Amazon.com (NASDAQ:AMZN) acquired Whole Foods in mid-2017. After the acquisition, Whole Foods began to cut costs and offer some products at lower prices than Sprouts, especially for Amazon Prime customers (though many items are still more expensive at Whole Foods). In response to the lost business, Sprouts has begun to raise prices where it can in order to more directly compete with Whole Foods.
This has resulted in increased popularity for Natural Grocers, which now has lower prices than Sprouts on many items. In order to take advantage of its new edge, the company has recently improved its loyalty program and begun actively promoting discounts. Now, customers can quickly and easily join the free loyalty program through text message, marking an important step for growth.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="United Breweries Co Inc.” data-reactid=”81″>United Breweries Co Inc.
United Breweries (NYSE:CCU) is an alcoholic beverages company based in South India. This company is home to the Kingfisher brand – India’s favorite beer. Its innovation, aggressive marketing and strong management caused the Economic Times to name it one of India’s top future-ready companies.
As of Feb. 10, United Breweries has a market cap of $3.43 billion, a price-earnings ratio of 19.69 and a price-book ratio of 2.14. GuruFocus has assigned it a financial strength score of 7 out of 10 and a profitability score of 8 out of 10. Over the past year, share prices have fallen 34.76% to trade 5.03% above the 52-week low of $17.66.
Over the past three years, United Breweries has grown its revenue at an average rate of 6% per year, Ebitda at a rate of 31.1% per year and net income at a rate of 44% per year.
India is an emerging market economy, and United Breweries is the country’s largest beer company. According to GuruFocus data, the economy in India is expected to grow 15% over the next year.
Compared to developed economies such as the U.S., which has an alcohol market that is completely saturated and intensely competitive, India still has plenty of room for dominant brand names to rapidly gain market share.
Additionally, in many provinces of India, there are currently strict laws on alcohol consumption. The drinking age for most types of alcohol is 21 in some states, 25 in others and 18 in only a few, while five states prohibit alcohol altogether. This means that in the long term, as the economy in India continues to develop, the potential decrease in drinking age may provide further headwinds for breweries.
Disclosure: Author owns no shares in any of the stock mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This article first appeared on GuruFocus.
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