I have just trawled through 35 stocks appearing on the list of the ASX rolling 52-week lows, with a view to securing a bargain.
To gain an overall market snapshot, I categorised the 35 stocks into market sectors. Gold accounted for 37% of the stocks, miscellaneous 25%, small-cap explorers 21% and mining services 17%. I have ignored both the mining services sector due to the slowdown in resource projects and the small-cap explorers due to limited access to funding.
The three shares I decided upon were as follows:
Kingsgate Consolidated (ASX: KCN)
In looking at the gold sector, I recall that Scott Phillips (co-advisor of our flagship investment service, Motley Fool Share Advisor) had very recently named Kingsgate as one of five gold stocks he's going to inspect more closely. At the same time, he cautioned that they were not yet recommendations.
After the end of last financial year the stock disappointed with a $300 million impairment charge against its South Australian Challenger gold mine. This prompted the company to lower production volumes, but target higher grade ore. Additionally, they pledged to cut mine development costs by up to 30% and implement job cuts, which should improve margins. All this was expected to make the mine cash flow positive.
Gold miners such as Kingsgate have watched the gold price drop from above US$1,600 in April to it current level of US$1,239. Just over a month ago Citigroup upgraded the stock as they saw reasonable valuation support at $1.40. The current price is 0.91cents, with no additional bad news, other than the price of gold moving down another US$50. At such times the selling in gold stocks can lack discrimination and value begins to emerge.
So I would strongly recommend putting Kingsgate on your watch list, while trading at 52-week lows.
Oroton (ASX: ORL)
This stock had defied the miserable retail trend for a long time, with CEO Sally MacDonald being widely praised for her efforts. Then the company lost the Ralph Lauren Polo license, a totally unforeseeable event which brought the shares off its highs.
However, Oroton has gone a long way toward plugging the earnings hole created by that loss, by acquiring two new licensed fashion brand lines in Brooks Brothers and The Gap. It currently has two potential growth avenues via expansion of the product range and expansion throughout Asia.
Finally, it was one of the few retailers alert to the migration toward online purchasing and such sales now account for 10% of all domestic and overseas sales.
General Property Trust (ASX: GPT)
This company has always been of the highest quality. However in the most recent reporting season it revealed weak underlying market fundamentals. In the view of Deutsche bank at the time of its FY 2013 profit results, GPT's saviour was its $1.3 billion of acquisition capacity, which provided management with the ability to buy growth in the coming years.
This is evident with the offer made for Commonwealth Property Office Fund (ASX: CPA) which had the effect of knocking down the price of the shares, despite Deutsche's assertions that such acquisitions will buy growth.
Additionally, at a late October earnings guidance and strategy update, the company set an ambitious target for a 140% increase in funds under management to drive returns in the future.
Foolish takeaway
Investing in out of favour shares may yield big returns should fortunes reverse. Of the three stocks mentioned, my greatest confidence would be placed in Kingsgate.
However, one must bear in mind the risks involved in catching a falling knife.
Having a deep understanding of the stocks lends extra confidence to a purchasing decision. In the absence of this, place these stocks on your watch list and monitor them over time to gain that understanding.
