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Ion Geophysical Corp (IO), Midstates Petroleum Company Inc (MPO), Fairchild Semiconductor Intl Inc (FCS): Three Stocks Near 52-Week Lows Worth Buying

Ion Geophysical Corp (NYSE:IO)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.

Profits could be right under your nose
The demand outlook for the oil and natural gas industry couldn’t possibly be any stronger, with domestic and emerging markets craving energy assets now more than ever. With this in mind, oil and gas companies are turning to 3-D seismic technology around the globe that’ll help them locate new and potentially earnings-accretive assets. That’s where seismic software developer Ion Geophysical Corp (NYSE:IO) comes in.

On paper it just seems like a no-brainer kind of investment, but its execution in the latest quarter was nothing short of lacking. Revenue in the second quarter did grow by 15% to $120.9 million, but this was still worse than the $127.5 million the Street expected. The company’s break-even EPS was also $0.07 shy of expectations. Ion Geophysical Corp (NYSE:IO) noted that cost overruns, primarily related to its acquisition of 3-D marine systems, and consolidation in the towed steamer market, which reduced the number of seabed contractors and hurt its software revenue, was to blame for its disappointing results.

The good news for shareholders is that these look like very short-term issues. Ion Geophysical Corp (NYSE:IO) expects to recognize more revenue for its software contracts in the second half of the year, and the integration costs and kinks associated with purchasing 3-D marine systems should be gone by the fourth quarter. Currently, with Ion Geophysical Corp (NYSE:IO) at just 10 times forward earnings yet forecast to grow by 13% to 15% annually, it looks like a steal with offshore exploration and production demand only expected to rise.

A step in the right direction
The fact of the matter is that few acquisitions ever go exactly as planned. Regardless of the sector you’re invested in, the buying company almost always runs into unexpected delays or higher expenses.

Such is the case with up-and-coming oil and gas driller Midstates Petroleum Company Inc (NYSE:MPO), whose shares were also sacked last week, much like Ion Geophysical Corp (NYSE:IO), after reporting a smaller-than-expected profit because of acquisition costs. For the quarter, Midstates Petroleum Company Inc (NYSE:MPO) delivered a 23% increase in revenue to $126 million as per-day oil production increased by 21% and operating expenses more than doubled. The big weight that caused Midstates Petroleum Company Inc (NYSE:MPO) to miss Wall Street’s EPS estimates relates to the acquisition of $620 million in assets of Panther Energy in the Anadarko Basin.

But where investors see a miss, I see plenty of opportunity. For one thing, Midstates Petroleum Company Inc (NYSE:MPO)’ largest assets appear to be in the Wilcox Sands formation in Texas and Louisiana. Swift Energy is also a large player in the Wilcox Sands and it has recorded a perfect success rate in its vertical drilling operations in the region. This would lead me to believe that Midstates Petroleum Company Inc (NYSE:MPO) is in for growing production and stability of cash flow once it truly ramps up its operations in Wilcox.

The other factor I like here is that its Panther Energy assets are two-thirds comprised of higher-margin, higher-demand liquids (45% oil and 21% natural gas liquids). Once this acquisition is in the rearview mirror, it should rapidly ramp up Midstates Petroleum Company Inc (NYSE:MPO)’ earnings potential and make its forward P/E of 11 appear like a bargain.

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