Warren Buffett once mused that he likes to buy stocks the same way that he buys his socks – when they're on sale.
To take the metaphor further – Buffett knows he will always want to wear socks, therefore when they are cheap he's happy to accumulate more of them. This speaks volumes to the approach Buffett brings to his investment thinking, including acknowledging the long-term nature of owning businesses and hence the opportunity to buy long-term bargains during periods of short-term chaos.
Time to go bargain hunting.
One of the best places to identify bargains is amongst stocks trading near their 52-week lows. The reason this can be a good 'hunting ground' is because often stocks in this category have been discarded by investors, they are unpopular and unloved. These factors can at times lead to mispricing of a stock due to investors being so discouraged by the near-term outlook that they fail to accurately assess the long-term prospects.
Here are four stocks which are trading within approximately 5% of their yearly low and that have caught my eye in the past week and could be worth further analysis by investors.
Crown Resorts Ltd (ASX: CWN) has been sold down due to a number of factors including concerns over its exposure to heightened Chinese Government restrictions in Macau and big wins by its VIP customers in Australia. With the stock down 15% over the past year, Australia's largest casino operator is starting to look appealing.
Woolworths Limited (ASX: WOW) share price has underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the past 12 months, registering a fall of 1.1% compared with a gain of 2.2% by the index. As Australia's largest retailer, Woolworths holds a commanding position within the Australian economy and offers investors a very defensive stream of earnings.
Australian Foundation Investment Co. Ltd. (ASX: AFI) is Australia's largest and oldest listed investment company (LIC). The company has an outstanding track record of managing a conservative, diversified blue-chip portfolio and paying a steadily increasing stream of dividends. While the stock has traded within a surprisingly narrow range over the past 12 months, with the index having performed poorly over the past year it's not surprising that Australian Foundation is also trading less than 6% above its 52-week low. In many ways an investment in Australian Foundation can be seen as an investment in the long-term future of the Australian economy and the stock market.
Reject Shop Ltd (ASX: TRS) has plunged a massive 54% over the last year to trade at not just a 52-week low, but also a multi-year low. Despite the sell-off the discount retailer remains a profitable and expanding business with appealing long-term prospects.
