With the S&P500 signaling its move to a bullish market, some investors are looking for stocks offering great value and poised for recovery. However, most experts still caution investors that we are not out of the woods yet. With a high inflation and high-interest rate environment, some experts suggest being on the defensive even with a hope of recovery. If you are looking for cheap stocks that offer some cushion via dividends, you might want to look at dividend stocks trading at their 52-week low.
What is a 52-week low?
The 52-week low is the lowest price that a price has traded in in the last 52 weeks. This is also a technical indicator used by some traders and investors who view this figure as a potential bottom or inflection point of the price to reverse its bearish course. It is not uncommon for traders to step in when prices breach or touch the 52-week low/high mark, which results in spikes in volume. This can be due to additional selling pressure as investors see it as their “line in the sand” or buyers picking up the stock because it is now trading at cheaper levels.
Strategies revolving around the 52-week low
Understanding the 52-week low and its significance allows investors to exploit this knowledge and build strategies around it.
For example:
For value investing
One strategy some investors use for the 52-week low is adding it to their value investing approach. Value investors generally believe that stocks trading near their 52-week lows may already be undervalued based on their current financials and potential growth. This presents an opportunity for future price appreciation and getting the best price for the stock. As the adage says, “Buy when there's blood in the streets.”
As a reversal area for the price
Another strategy where the 52-week low is used is in technical analysis, which revolves around the potential price support. As the 52-week low is considered by some an “extreme” in terms of being a low point, traders can look for signs of price stabilization, reversal patterns, or oversold conditions that can suggest that the price may rebound or even reverse its course. This can give traders one of their best trades of the year when they can the absolute bottom of the price once the reverse is confirmed.
Contrarian approach
Besides value investors, another type of investor that takes advantage of the 52-week low is a contrarian investor. Contrarian investors generally go against the market sentiment. Suppose a stock is bombarded by bad news, but it's not fundamentally affecting how the business operates. All the while, investors panic, and the stock hits its 52-week low, and contrarians see it as an opportunity to buy as they think that this is simply an overreaction of the market and it will simply correct itself. Contrarians generally believe that a market's extreme pessimism and market overreactions can misprice stocks while creating pockets of opportunities you don’t see daily.
Things to consider when trading the stocks near the 52-week low
Even with the potential returns or how cheap a stock looks, investors should still not treat it as a buy signal. Like any form of investment, there are reasons prices go down. Some things that investors can consider when buying these are:
Risk Management
While trading the 52-week low presents attractive opportunities, investors and traders should still employ proper risk and trade management. Stocks that are trading at their 52-week lows can continue to decline if the underlying reasons affect the company's performance and business as a whole. Therefore, it's important to employ proper position sizing, stop losses, and other methods to protect the capital if the trade doesn’t go your way.
Fundamental Analysis
Even though prices become attractive in terms of potential value when prices are trading near their 52-week lows, it should not be the only reason for buying into a stock. Looking through financials and the business model can help assess a company's long-term viability and growth prospects. Looking at the stock beyond its current price can help investors separate those with value and those that are value traps.
Market conditions and trends
Current market conditions and trends are significant when trading the 52-week low. When the market is ultimately bearish, the volatility rises, and investors tend to panic, making it even harder to see which stocks would have a better chance of rebounding or recovering. Should the market become indecisive in direction or goes full-on bearish, investors can wait on the sidelines and see how stocks react or behave along its 52-week-lows.
Now let’s look at some buy-rated dividend companies that are currently trading near their 52-week low.
Star Bulk Carriers (SBLK)
Dividend Yield: 7.85%
52-week low: $16.85
Star Bulk Carriers Corp is a Greece-based shipping company that owns and operates a fleet of dry bulk carrier vessels globally. The Company’s vessels transport major bulks, which include:
- Iron ore
- Coal
- Grain
- Bauxite
- Fertilizers
- Steel products
Its 128-vessel fleet has a carrying capacity between 52,247 and 209,537 dwt. The Company's fleet includes:
- Newcastlemax
- Capesize
- Panamax
- Post Panamax
- Kamsarmax
- Ultramax
- Supramax
These vessels have an average age of approximately 10 years and an aggregate capacity of more than 14 million deadweight tonnages (dwt).
Analyst Rating
Analysts rate SBLK as a “Strong Buy” with a mean target price of $27.50 and a high target of $30.00, an upside of 63.67%. The recommendation comes from 4 Strong Buy recommendations from analysts.
Portman Ridge Finance (PTMN)
Dividend Yield: 14.05%
52-week low: $18.00
Portman Ridge Finance Corporation is a closed-end investment company whose investment objective is to generate current income and capital appreciation from investments in:
- Senior secured term loans
- Mezzanine debt
- Equity investments (held by middle market companies)
The company mainly invests in first and second-lien term loans. The company also originates, structures, and invests in secured term loans, notes or bonds, and mezzanine debt. The company sometimes also invests in loans to publicly traded companies, high-yield bonds, and distressed debt securities (collectively, the debt securities portfolio). It also invests in debt and subordinated securities issued by collateralized loan obligation funds (CLO Fund Securities) and joint ventures.
Analyst Rating
Analysts rate PTMN as a Moderate buy based on 1 strong buy and 1 buy recommendation. PTMN has a mean target of $23.50 and a high target of $26.00, with an upside of 29.16%.
Bgsf Inc. (BGSF)
Dividend Yield: 6.32%
52-week low: $8.85
BGSF, Inc. is a consulting, managed services, and professional workforce solutions company that operates in 2 segments:
- Real Estate
- Professional
Its Real Estate segment offers office and maintenance field talents to many apartment communities and commercial buildings in 36 states and D.C. This is done through property management companies responsible for the day-to-day operations of the apartment communities and commercial buildings. Real Estate also has 2 two divisions, BG Talent and BG Multifamily. The Professional segment offers specialized talent and business consultancy on a nationwide basis. This is offered to client partner projects in :
- Information technology (IT)
- Managed services
- Finance
- Accounting
- Legal
- Human resource
In addition, the Professional segment has three divisions: IT Consulting, Managed Services, and Finance and Accounting
Analyst Rating
Analysts rate BGSF as a Strong Buy based on 2 strong buy ratings from analysts. It has a mean target price of $17.62 and a high target of $18.25, an upside of 87.56%.
Final Thoughts
While the 52-week low provides offers different ways of taking advantage of the market's overreaction or how the market doesn’t realize the fair value of a stock. Risk management must still be a core part of any investment strategy. Remember: any stock that may be cheap can still go cheaper. One may think that he has caught the bottom, but instead caught a falling knife along with the kitchen sink.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
