Buying low and selling high is a popular investment strategy that value investors inspired by Warren Buffett have perfected over the years. The legendary investor has consistently emphasized the importance of identifying stocks of undervalued companies with significant growth prospects and holding onto these investments for an extended period.
Some of the most undervalued stocks to buy are those trading near their 52-week lows, backed by solid underlying fundamentals. A lot of these companies have durable competitive advantages but have fallen due to an overreaction by pessimists to short-term headwinds. The companies should boost strong brands in their respective fields with high barriers to entry.
Value investing means paying attention to more than just the stock price but by focusing on valuation. A pullback often creates buying opportunities where quality companies become available at low price-to-earnings multiples or low price-to-sales ratios relative to their industries.
Over the past 20 years, 95% of investment firms have failed to beat the S&P 500. In contrast, Buffett has averaged an annual return of 20%, nearly double the S&P 500 over the same period.
With the S&P 500 up by about 20% for the year, most stocks are trading at premium valuations above their 52-week highs. The impressive gains have come amid unfavorable market conditions, with interest rates near all-time highs of between 5.25% and 5.50%.
On the other hand, some stocks have pulled back significantly and are currently trading close to the 52-week lows, their core business hurt by the high interest rate environment. Additionally, some of the stocks have underperformed due to deteriorating macroeconomics. Concerns that the U.S. economy could plunge into recession have always hurt some of the stock's sentiments. The U.S. Federal Reserve is expected to cut interest rates in September and these stocks might not be near their lows for long.
According to Stuart Keiser, Citi head of equity trading strategy, the high interest rate environment has left the market in a very unstable situation amid a “ tricky environment.” Likewise many investors are on edge as to whether there will be a soft or hard landing. Keiser said, in an interview on CNBC's Fast Money:
“Basically you had a 12 to 18 month period of positive economic surprise of what I would call higher for longer growth strong rate cuts getting pushed out. Markets were able to deal with that because growth was really positive. Since late June economic data surprised negative, economic data momentum negative. The market is now trading instead of higher for longer trading, a bit of growth slowdown. That’s why you are getting this schizophrenia because as growth decelerates you get into a borderline at which the risk becomes really big that you could go hard landing instead of soft landing. So our view is that the risk reward is not what it was a couple of months back”
Amid the market outlook uncertainty, focusing on stocks near the 52-week lows is a sure way of balancing the risk reward amid the premium valuation in play. While the focus has been on artificial intelligence investment plays, stocks in various sectors are trading at discounted valuations and are sure to offer significant returns.
Our Methodology
To compile the list of the best 52-week low stocks to buy now, according to short sellers, we first screened for stocks that were trading near their 52-week lows (0-10% range) using the Finviz stock screener. Next, we looked at their short interest and picked the stocks with the lowest short interest that were the most popular among elite hedge funds. The stocks are ranked in descending order of their short interest.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of an oil refinery, with smoke billowing from its chimneys.
PBF Energy Inc. (NYSE:PBF) is an energy company that refines and supplies petroleum products. Its product line includes gasoline ultra-low sulfur diesel jet fuel, among other products. The stock is barely up by 1% from its 52-week low, an underperformance that comes amid solid underlying fundamentals.
For starters, PBF Energy Inc. (NYSE:PBF) continues to generate significant revenues, with oil prices trading above $75 a barrel. The company is benefiting from improving margins in the refining business.
Margins for refining have returned to more stable levels after reaching extreme highs in early 2023, following the disruption caused by Russia's invasion of Ukraine, which significantly affected the markets for these products.
PBF Energy Inc. (NYSE:PBF) reported a combination of outcomes for the second quarter of 2024, with its profits affected by falling RIN-adjusted crack spreads, weak demand for co-products, and prolonged maintenance tasks. However, the company successfully kept a strong cash position, aiming for a cash balance between $1 billion and $1.5 billion.
PBF Energy Inc. (NYSE:PBF) also reiterated its dedication to its investors, emphasizing its focus on long-term value creation through share buybacks and dividend payments.
The firm's assets on the East Coast are strategically placed to tackle supply shortages, while those on the West Coast continue to hold their competitive edge. PBF Energy is set to increase its output from the Trans Mountain Expansion pipeline by the year's end, signaling a favorable perspective for its future endeavors.
Even though a $100 million chance for profit was missed due to prolonged downtime at Del City and Toledo and an extra $50 million due to a downturn in the market, PBF Energy Inc. (NYSE:PBF) maintains a hopeful stance for what lies ahead. The firm anticipates a rise in demand in the latter half of the year and is confident about the prospects for its renewable diesel division in the coming years.
Amid the improving operational efficiency and financial performance, PBF Energy is currently trading at a price-to-earnings multiple of 20 while offering an annual dividend of 2.92%. The amount of outstanding shares short as of July stood at 8.17%.
During 2024's second quarter, 32 out of the 912 hedge funds part of Insider Monkey's database had bought PBF Energy Inc. (NYSE:PBF)'s shares. John Overdeck and David Siegel's Two Sigma Advisors was the biggest investor, courtesy of its $75.85 million investment.
Overall PBF ranks 18th on our list of the 52-week low stocks to buy now according to short sellers. While we acknowledge the potential of PBF as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PBF, check out our report about the cheapest AI stock.
