With the S&P/ASX 200 (INDEXASX: XJO) rising so strongly in the previous few days, very few companies are being thrown up as at 52-week lows.
Those few stocks that are falling substantially are likely suffering from either or both of two things; 1) loss of investor confidence, and 2) negative market updates. All three of today's stocks look to be suffering solely from the first one, though it's pretty easy to identify the market forces behind investor worries.
Here's what you need to know about recent falls at:
Sims Metal Management Ltd (ASX: SGM) – last traded at $9.50, down 5% for the year
Sims has fallen just 5% in the past year after recently trading as high as $13.05 in March.
While there's been no recent news, I think investors got way too excited in the stock and it is worth noting that Sims now trades for less than it did prior to the commencement of management's 5-year strategic plan.
The latest half-year results were promising with underlying profit up 55%, although substantial headwinds still affect the business. Falling iron ore prices are bound to affect recycled steel values and weak employment conditions are prolonging the life of a variety of goods, reducing scrap volumes.
Management's turnaround program appears to be having positive effects so far (heaven knows it was long overdue), but given Sims Metals trades on a forward Price to Earnings (P/E) equation of 20 I think the company is still quite expensive given its history of underperformance and its uncertainty going forwards.
I would wait a month or so to peruse the full-year results before deciding either way but based on what I see right now I would avoid Sims Metal Management for the time being.
FONTERRA ORD UNIT (ASX: FSF) – last traded at $4.16, down 25% for the year
While investing in agricultural companies would seem to be the road to infinite wealth given the constant need for food and a growing global population, the truth is somewhat different.
Agri-business faces a number of threats including shifts in the prices of its commodities as well as vagaries of weather, disease and competition. Fonterra reported fairly poor results earlier this year, and the stock has fallen hard as a result.
Management's decision to conduct a business review appears to have identified plenty of savings to be made, but that's not necessarily any comfort to shareholders who bought in when the business was running inefficiently.
However the size of savings from increased efficiency and productivity make the business look a whole lot more appealing. Despite looking fairly expensive with a P/E of 22, Fonterra is trading substantially below its average price since listing and the company could be a reasonable purchase for the right investor.
Cabcharge Australia Limited (ASX: CAB) – last traded at $3.55, down 14% for the year
Finally, Cabcharge Australia trades on an interesting set of figures, with a P/E of just 7 and a dividend yield of 6.6% – fully franked! However, the company operates in a mature market with a monopoly position that is gradually being eroded by government legislation and competition.
With limited prospects for growth and a fairly solid chance of an earnings reduction, it's not surprising that the company is so 'cheap'.
The ability of competitors to lure away drivers and the government pressure on fees could also indicate that Cabcharge users are not confident that they're receiving value to justify their expenses.
In a semi-closed, licensed and heavily regulated industry like taxi services, this is a big problem and not one that I can foresee being resolved for the benefit of shareholders. While Cabcharge could make an interesting contrarian buy, it is not a purchase that I would make myself.
