It’s getting mighty hard for investors who refuse to accept the excessive valuations the market is placing on most stocks at present.
The past month alone has seen the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rally a staggering 8.7% which has pushed the index to a new seven-year high, with many quality stocks also pushing fresh 52-week highs.
It’s a similar case overseas as well. European markets have been hitting fresh seven-year highs despite rumblings of troubles in Greece and the US market continues to go from strength-to-strength and flutters with record all-time highs.
That makes for slim pickings for investors who are more inclined to seek out opportunities amongst stocks selling at 52-week lows, where the potential to find a stock trading at a price which offers a significant discount to its value is more common.
This quote from well-known US investor Charles Brandes drives home the point:
“For long-term investors who evaluate share price in relation to business value, price declines can represent a tremendous opportunity in the form of discounts. Discounts are the building blocks of value.”
Last week three stocks of interest hit new 52-week lows. While there is no guarantee that they don’t have even further to fall, at the very least they could be worthy of a place on a value investor’s watch list.
- Reject Shop Ltd (ASX: TRS) touched a new low of $5.43 which means the stock has declined by close to 50% over the last year. With research by Morningstar suggesting earnings per share (EPS) will touch a low this financial year (FY) before increasing in FY 2016 to 53.9 cents per share (cps), investors could currently buy this retailer on a forward price-to-earnings (PE) ratio of just 10.2x.
- INGENIA STAPLED (ASX: INA) hit a new 52-week low of 39.5 cents and its share price has now lost 8.1% over the past year. The group remains well placed to consolidate the seniors living and lifestyle markets. Morningstar’s data suggests the group will grow earnings over the next two years and in FY 2016 it should earn 4.2 cps. Based on this forecast the stock is trading on a forward PE of 9.4x.
- Dorsavi Ltd’s (ASX: DVL) share price has now fallen 20% over the past 12 months and touched a new low of 35 cents last week. The company continues to develop the commercialisation of its technology which provides wireless sensor movement monitoring. The company is yet to turn a profit but its potential remains exciting.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.