These dividend stocks are well off their highs and are worth considering for income and capital gains. Risks, however, do exist.
As an investor who finds value stocks to be less risky with higher chances of yielding market-beating returns, I’m always on the lookout for stocks that are oversold. Sometimes a lousy stock gets rightfully sold off and you should avoid it.
However, sometimes a stock gets taken down because investors are reacting emotionally. They sell first and ask questions later. That can create great opportunities for investors who are seeking a good stock at an undervalued price.
Other times, you have a stock that is subject to things like fluctuating commodity prices, but is likely to get back up once external factors stabilize.
Sometimes you might get lucky, and find that oversold stock that also pays a dividend. If you are correct in your assessment, you may get paid that dividend while you wait for the market to realize how wrong it was and send the stock back up.
Here are three interesting oversold dividend stocks worthy of consideration:
Teck Resources Limited (NYSE: TCK) is a mining and production company with operations in the Americas, Asia Pacific, Europe, and Africa. It mines for and produces copper, steel-making coal, refined zinc and zinc concentrates. The company also produces lead, molybdenum, germanium, indium, cadmium, gold, and silver. It also has diversified into producing industrial chemicals, fertilizers, sulfur products, and even electrical power.
It owns or has interests in 13 mines in Canada, the United States, Chile, and Peru, as well as operates a metallurgical complex. It’s the kind of company I prefer over a pure-play mining company because of its diversified operations.
The stock presently trades at $15, almost 50% off its 52-week high. The company is subject to the whims of the commodities market, so weak prices in coal have been weighing on it. However, because of its diverse product line, the coal side has been somewhat offset by zinc production and pricing.
So while Q3 earnings were down by 67% YOY, it still mustered an $84 million profit and $651 million in EBITDA. That kind of cash flow, combined with $2 billion in cash on hand, and a $3 billion untapped credit line means the company is in solid shape.
Were the balance sheet a total mess, I’d avoid it. However, $651 million in operating cash flow in a lousy quarter is a business I’d seriously look at.
I think Teck Resources is a bargain at these levels. And its 5.2% dividend yield doesn’t hurt.
Alliant Techsystems (NYSE: ATK) has been having a tough year. The stock fell off a cliff in May after announcing its FY15 EPS would come in around $11, instead of $11.28. The stock fell over 20%. Then it announced a merger with Orbital Sciences Corp. (NYSE: ORB), which literally blew up this past week when its spaceship exploded on the launch pad, putting the merger into question.
In this case, however, things are very cut and dry. In Alliant, I see a company with an EPS growth rate of 14% trading at 10x earnings. That’s a value stock, pure and simple.
With $132 million in cash and only $1.8 billion in debt, and regular FCF of over $200MM annually, and a 1.1% yield, it is also in solid shape and vastly oversold.
I think ATK is a buy at these levels.
Barrett Business Services, Inc (NASDAQ: BBSI) provides business management solutions to small and mid-sized businesses. They come in and take over things like payroll, workman’s comp, and other admin functions.
It’s the workman’s comp angle that has destroyed BBSI’s stock, which is 80% off its high and which fell from $40 to $23 last week. The company is self-insured, so it is on the hook for workman’s comp claims, and those claims have been hurting it. Barrett Business has had to adjust a lot of accounting and reserves, and management says it is difficult to determine its liability status.
So that leaves you with a choice.
If everything works out fine, it has limited liability, plenty of cash to cover the liabilities, then Barrett represents an insanely cheap stock. Indeed, its market cap represents the amount of cash it has on hand ($162.5 million), so you get the business for free. Plus, the 3.2% yield doesn’t hurt.
The downside is the company is worth zero if everything goes against it and it has enormous liability.
Barrett business Services is for speculative investors only.
Lawrence Meyers has no position in any stock mentioned.
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