3 Value Stocks Near 52-Week Lows Worth Buying

While many companies are rising past their fair values, others are trading at potential bargain prices. Although many investors would rather have nothing to do with stocks wallowing at 52-week lows, it makes sense to see whether the market has overreacted to a company's bad news.

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

Power your portfolio
It's been a truly brutal run for coal companies over the past year and change. With natural gas and alternative energy costs falling, the long-term future of the notorious "dirty" fuel source has been cast into doubt. As such, coal prices have languished and demand for coal has been tepid at best.

Source: Alliance Resource Partners. 

Yet one value stock I'd suggest that investors take a long look at because it isn't like its peers is Alliance Resource Partners (ARLP 0.94%).

What sets Alliance Resource Partners apart from most of the coal sector are its contracts. Alliance Resource has a good chunk of its production accounted for many years in advance, meaning its exposure to wholesale coal price fluctuations is minimal and demand is essentially guaranteed and stable. In its fourth-quarter earnings release, for example, Alliance Resource notes that 92.6% of its estimated coal sales volumes in 2015 have been priced and committed based on the midpoint of its guidance. The company did note current market conditions will have it running about 4 million tons below capacity in 2015, but that's why these hedged contracts are there in the first place. Plus, it's not as if coal production isn't still the primary source of electricity generation in the U.S.

Source: Alliance Resource Partners.

Acquisitions have been another key component to Alliance Resource's success. The company's acquisition of 452.2 million tons of Illinois Basin reserve coal from the bankrupt Patriot Coal adds approximately 5.1 million-5.6 million tons of guaranteed coal delivery between 2015 and 2017. And need I remind investors, Alliance Resource Partners has grown its profits in 14 consecutive years!

Alliance Resource Partners also benefits from its master-limited partnership status. This keeps the company from being exposed to high U.S. corporate tax rates and allows it to pay out incredible dividends to investors. In Q4 Alliance Resource's management team announced a 2% increase in its dividend to $0.65 per share, the 27th consecutive quarter that the company has boosted its payout to shareholders.

Sporting a forward P/E of just nine and a dividend yield approaching 7%, this could be a value and income investors' dream stock.

Dividend to the end
Next I'd suggest turning your attention to the financial sector to take a closer look at the highly unpopular mortgage real estate investment trust, or mREIT industry. Specifically, American Capital Agency (AGNC -1.44%).

Source: TaxRebate.org.uk via Flickr.

Why are mREITs on the Wall Street's naughty list? A lot of it has to do with the prospect for rising interest rates. Mortgage-REITs make money based on the difference at which they borrow and the rate at which they lend. When rates are low they can earn more than when rates are on the rise. Furthermore, when lending rate visibility is good they have a better ability to use leverage in their favor. With the expectation that the Federal Reserve will raise its federal funds target rate in 2015 many investors have taken to selling this sector.

However, I believe American Capital Agency makes sense for two reasons.

First, American Capital Agency focuses strictly on agency loans. Agency loans are protected by the U.S. government against default, while non-agency loans aren't. The gist of this is that American Capital Agency's assets tend to have considerably lower yields than its peers, but that its assets are protected from default if the housing sector suddenly weakens. Despite these low yields American Capital Agency is able to use higher amount of leverage to its advantage, thus boosting profits and returns for investors.

Source: American Capital Agency. 

The other point to consider is that American Capital Agency is a REIT, and as a REIT it's required to pay out a minimum of 90% of its profits to shareholders as a dividend. In return, it gets plenty of tax breaks. Based on the company's February payout of $0.22 per share, it's currently pacing an annual yield of 12.2%. Even if lending rates rise and American Capital Agency's margins tighten, there's a good likelihood, in my opinion, that its dividend yield will remain healthily above 8%. As long as Europe remains weak and China's growth is constrained, the Fed is unlikely to get too aggressive with rate hikes. This bodes well for American Capital Agency through 2017, I believe.

It's a remarkable value stock that isn't getting the attention it deserves.

Betting on basic needs
The last value stock popping up on the radar worth taking a closer look at is Hillenbrand (HI -1.25%).

Source: Hillenbrand.

Hillenbrand is an "interesting" company to say the least. Its two business components provide what border on basic-needs services and products, but they're in no way related. The company's processing equipment group supplies products and services to industrial companies, as well as the oil and gas industry. Lately this segment hasn't been the source of good news, considering the price of oil. But the other component, its Batesville segment, is the largest casket maker in the United States.

On paper both divisions make sense over the long run. Energy demand around the world is growing, and Hillenbrand's process equipment group, which supplied 64% of its revenue in the first quarter, should benefit as American shale gas projects expand. I don't believe natural gas and oil prices will remain where they are now for an extended period of time, so any rebound would represent a catalyst for this division.

Although we're living longer than ever in the U.S., death is one of the very few certainties of life. This would mean Hillenbrand's casket business is likely to see its revenue potential grow as the population of the U.S. grows. In Q1, for instance, revenue in the Batesville segment rose by 2%.

While there will be hiccups now and then, such as the company's admission of negative operating cash flow in Q1, this is a stable long-term company with a forward P/E of just 13 and a dividend yield of a healthy 2.6%. Its growth rate isn't going to knock anyone's socks off, but you probably won't lose any sleep with this stock in your portfolio, either.