3 Value Stocks at Their 52-Week Lows: A Detailed Analysis

I love scouting for value in these situations, and I want you to get excited about it too. Why? Because when stocks hit their lows, they’re often cheaper, and cheap stocks are where we begin to find value. Remember, just because a stock is down doesn’t automatically mean it’s a bargain, but it’s definitely a solid starting point.

Let’s get into the details of these three stocks, starting with:

1. Johnson & Johnson (JNJ)

Ah, Johnson & Johnson—the household name with a diverse range of products. Currently trading at $147.11, its 52-week high was $168, which it hit just three months ago. That’s a relatively tight range for a company of this size. Over the past five years, Johnson & Johnson hasn’t shown a lot of volatility, which makes sense given its stability.

Dividend and Free Cash Flow

A significant chunk of JNJ’s returns comes from its 3.3% dividend yield, consuming $11.7 billion of their free cash flow. Good news: their average free cash flow over the past five years has been $18.65 billion, and last year it was $19 billion. This means they can comfortably afford that dividend. But don’t expect massive growth from a company this large—analysts predict revenue growth of only 3-5%.

Strong Returns on Capital

One thing to love about JNJ is its 12.5% return on invested capital (ROIC) over the last five years, improving to 13.3%last year. The return on equity (ROE) is even better at 21%, indicating efficient use of shareholders’ money.

Eight Pillars Analysis

Here’s where things get interesting. JNJ scores seven out of eight checks in our eight-pillar analysis. The one red flag? Net income growth. Despite that, we see cash flow growth and a $6 billion revenue increase, so there’s likely a specific reason for the net income drop—probably a write-off.

Looking at the income statement, we see unusually high “special income and charges” and “other expenses.” This suggests they likely wrote something down, which you can confirm by checking their 10-K report on the SEC website.

Valuation Using the Stock Analyzer Tool

With PE ratios and price-to-free cash flow at 16-22, I used conservative growth assumptions of 2-4% revenue growth and 19-24% profit margins. My desired return was 9%, in line with historical market returns.

After hitting the analyze button, here’s what we get:

• Low price: $101
• High price: $180
• Middle price: $140

I set my watchlist alert at $140 and plan to sell puts at lower prices. Remember, these returns include the 3.3% dividend, so it’s a total return calculation.

2. Canadian National Railway (CNI)

Next up is Canadian National Railway, a company with a 2.27% dividend yield that eats up $1.5 billion of their $2.5 billion free cash flow. Over the past five years, it has only gained 14.5% in stock price, but it remains a strategic leader in the railway industry.

Business Overview

CNI transports 300 million tons of goods annually across its 18,800 miles of track. It handles 27% of Canada’s national railway shipments and is the only North American railway connecting to three coasts: Atlantic, Pacific, and the Gulf of Mexico. This gives CNI unmatched reach and a significant competitive moat.

Profit Margins and Debt

With a gross profit margin of 41.5% and a net margin of 30%, CNI is quite profitable. However, it’s a highly capital-intensive business, which explains the high debt levels. Still, I’m less concerned about the debt because laying new tracks isn’t easy, meaning competition is limited.

Valuation Using the Stock Analyzer Tool

For CNI, I assumed revenue growth of 2.5-5.5%, profit margins of 19-22%, and PE ratios of 15-21. After analyzing, the results were:

• Low price: $54
• High price: $96
• Middle price: $72

Currently trading at $103, I’m waiting for a better entry point.

3. Walgreens (WBA)

Last but not least, Walgreens. This stock has been a disaster, down 83% in the last five years and 86% in the last 10 years. Currently trading at a market cap of $8.6 billion with an enterprise value of $76 billion, Walgreens has struggled despite being a household name.

Dividend Concerns

While the 14.6% dividend yield may look attractive, it’s unsustainable given their negative free cash flow. There’s even talk of private equity stepping in to take the company private, which might be a smart move for restructuring.

Eight Pillars Analysis

Walgreens fails on every metric in our eight-pillar analysis. Revenue grew by $27.6 billion over the last five years, but net income is down $9 billion and free cash flow is down $4.5 billion. This company needs a serious turnaround.

Valuation Using the Stock Analyzer Tool

In my previous analysis, I used revenue growth assumptions of -2% to 2%, profit margins of 1.75-2.75%, and free cash flow margins of 2.5-3.5%. Even with those conservative inputs, the stock looked cheap, but it’s not something I’m comfortable holding long-term.

Results:

• Low price: $25
• High price: $50
• Middle price: $37

Given the current uncertainty, I’m staying away for now, but this could be interesting for someone with a higher risk tolerance.

Final Thoughts

Scouting for stocks at their 52-week lows is an excellent way to identify potential value plays. Johnson & Johnson offers stability with a solid dividend, Canadian National Railway provides a unique moat in transportation, and Walgreens presents a speculative turnaround opportunity. As always, do your due diligence and focus on what aligns with your investing style.

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