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Central Garden & Pet Co (CENT), TransGlobe Energy Corporation (USA) (TGA): Three Stocks Near 52-Week Lows Worth Buying

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Central Garden & Pet Co (NASDAQ:CENT)Just as we examine companies each week that may be rising past their fair value, we can also find companies potentially trading at bargain prices. While many investors would rather have nothing to do with companies tipping the scales at 52-week lows, I think it makes a lot of sense to determine whether the market has overreacted to the downside, just as we often do when the market reacts to the upside.

Here’s a look at three fallen angels trading near their 52-week lows that could be worth buying.

Green paw
The month of May has been one to forget for shareholders of Central Garden & Pet Co (NASDAQ:CENT). The maker of pet products as well as seeds and herbicides for lawn care tumbled after it missed Wall Street’s earnings estimates for a second straight quarter. The biggest downside pressure came from its lawn care segment, which saw expenses rise as fertilizer margins fell. However, now could be the time to consider jumping on board this interesting pet/lawn care hybrid company, as it has the potential to unlock shareholder value in a number of ways.

To begin with, I’m a big proponent of companies that cater to pets. More and more pets are being incorporated into the American household and counted as family members. According to the American Pet Products Association, 62% of households own a pet and an estimated $55.5 billion will be spent on various pet products this year. The pet products arena is certainly competitive, but with the pie expanding, there’s more than enough room for Central Garden & Pet Co (NASDAQ:CENT) to grow this segment by the high single digits, or perhaps even low double digits, since pet owners will pay whatever is necessary in order to ensure the happiness and health of their pet.

The other possibility — and I’m really just throwing this out as speculation — is that Central Garden & Pet Co (NASDAQ:CENT) could benefit from splitting into two companies: one focused on lawn care and the other pet products. A spinoff would allow for better sales and earnings visibility and would help unlock shareholder value — something that would be most welcome with the stock trading at just 81% of book value.

Even if Central Garden & Pet Co (NASDAQ:CENT) stays the course, I’d foresee improvement in fertilizer margins over the long run and a relatively steady increase in pet products sales and margins. At just 11 times forward earnings, it looks like a sincere bargain.

Time for a cup of joe
Two years ago I slapped a CAPScall of underperform on the iPath DJ AIG Coffee ETF following what looked like a rampant speculative run higher. Coffee stockpiles weren’t particularly low back then and there didn’t appear to be any weather-related production concerns, so the run-up in coffee futures looked unwarranted. Sure enough, two years later that CAPScall is up nearly 90 points. Now, I’m going to turn that frown upside down and suggest it’s the perfect time to consider buying this ETF that closely tracks coffee futures!

This time, there is the legitimate potential for a coffee shortage. According to research firm ICA, Mexico and Central American coffee production may fall by about 15% this year as crop disease and weather adversely affect production. The shortage in coffee crop yields also forced the Brazilian government to raise high-end Arabica coffee prices by 17% earlier this month. The shortage needed to boost coffee prices is certainly there.

The other side of the coin is that the demand for coffee remains steady. India, China, and numerous other emerging-market nations are seeing a surge in their middle-class populations for which coffee represents an affordable luxury.

I wouldn’t count on a speculative surge in coffee prices again, but I would be looking for coffee prices to trickle higher over the interim.

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