Just about every value investor you talk to will tell you that one of their regular activities is reading the 52-week low list in search of bargains. It's a start, as many of the stocks hitting new lows may be candidates for mean reversion. These would be companies that have the ability to survive until they thrive and see improving conditions and perceptions lead the stock price higher.
However, many of the stocks on the 52-week low list are there for very good reasons. Business is bad and it is not going to get better anytime soon. Some are former mo-mo stocks that reached loft levels until they missed the always highly accurate analyst estimates, and turned into no-no stocks. Some have too much debt and cannot pay the bills. The trick with the 52-week low list is to separate the gold from the garbage and focus on those that could reverse and move off the lows.
One way to do this is to look for those stocks flirting with yearly lows where the CEO has cracked open his checkbook and made a significant purchase of shares in his company. More than anyone else in the company, the CEO knows what has gone wrong and what steps need to be taken to get the company back on the right track and the stock price higher in the months and years ahead. Odds are he already has options and incentives tied to the stock price, so an open market purchase is a huge vote of confidence in the future of the company he controls and its stock price.
Aeropostale (ARO) is one of the more interesting stocks trading near the annual lows, but where the CEO seems to think his ship can reverse course. CEO Julian Geiger purchased 250,000 shares of the battered retailer. Recapturing the fickle attentions of the teen and young adult market is a tough task but he seems to think the chain is up to it. In spite of a poor first quarter, Mr. Geiger was upbeat for the future, telling investors in the earnings release "As we anticipated, the first quarter of 2015 represented a period of transition for us. We worked our way through a number of issues, including a merchandise assortment that was not consistent with our future direction, unseasonably cool weather, and the West Coast port slowdown. However, the performance of our women's division exceeded our expectations, and we were encouraged by the demand we were able to create through certain key items and promotions." If he is right, the stock could show spectacular gains over the next few years.
Investors did not like that the strategic review at New York Real Estate Investment Trust (NYRT) concluded that it was not practical to sell. They didn't like the departure of the CFO either, and the stock is trading within 3.5% of a 52-week low. But CEO Michael Happel feels a little more upbeat than many investors, as he recently bought over $207,000 in shares of his company. New York has been one of the strongest commercial real estate markets in the nation, and their REIT owns some very attractive properties. They have a nice portfolio of office retail and stand-alone properties in New York, and should do very well as long as that market stays strong. The stock trades at 1.32x book value, but given that they started buying properties in 2009, I suspect some of them are understated on the books. I am not going to fall out in shock if this nice collection on Big Apple properties does not attract an activist at some point in the future. The dividend yield is 5.04% so you get paid well while you wait for Mr. Happel to get the stock price higher or until someone steps in and does it for him.
A. H. Belo (AHC) has shown up on several screens in recent months, and the newspaper publisher is one of my favorite long-shot stocks. The publisher of the Dallas Morning News and the Denton Record-Chronicle newspapers also owns some specialty publications and a Spanish language newspaper. They have also been diversifying in contract printing and digital marketing, to lessen the reliance on the fading daily newspaper business. A. H. Belo also pays a nice dividend with a yield of 5.7%, so you get paid to wait for CEO James Moroney's faith in the company rewarded. He spent just over $97,000 last week to increase his stake in the company.
CEOs know what plans are in place to turn around their company and get the stock price off the 52-week low list and back on the 52-week high list, so it is significant when they buy shares in their company. Backing their plans with their cash gives them additional skin in the game and increases the likelihood of success.