5 Stocks to Buy at 52-Week Lows

BOSTON ( TheStreet) -- Harry Rady, chief investment officer of Rady Asset Management, bet on shares of Goldman Sachs ( GS), Google ( GS) and Monsanto ( MON) before they rebounded.

Now he's hoping for the same reaction from Research in Motion ( RIMM), Toyota ( TM) and Western Union ( WU).

San Diego, Calif.-based Rady Asset Management, which manages $270 million, takes a contrarian approach to investing, offering hedge-fund-like strategies in mutual funds. One strategy he employs is buying stocks trading at or near 52-week lows. That method can be attractive to investors during sluggish stock markets, he says, because of downside protection -- the shares have already tanked -- and the potential for big returns.

"On the long side, we buy irreplaceable, dominant first-tier companies," Rady says. His investment firm's short-only fund takes wagers on a decline in shares of what he calls second-tier companies trading at 52-week highs. Rady says cumulative returns in the long-only strategy have been triple those of the benchmark S&P 500 Index over the past 15 years.

Rady says a pitfall is a so-called value trap, when a company whose shares have tumbled is mistaken for a value stock.

"When stocks get cut in half, you sometimes buy 50 cents for 50 cents," he says. "My job is to make sure we're buying $1 for 50 cents."

Another risk is being too early with stock picks. Rady says the fund's biggest sector holding is natural-gas exploration and production companies. Natural gas is trading at historic lows, and many investors expect no quick turnaround.

"Our performance has suffered, but that's one of the drawbacks of being a deep value investor," Rady says.

For investors looking for deep-value plays in a volatile market, Rady offers a list of five stocks owned in funds by Rady Asset Management.

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Research in Motion

Company Profile: Research in Motion makes smartphones, notably the BlackBerry.

Closing Price: $46.72 (Sept. 17)

52-Week Low: $42.53 (Aug. 31)

Rady's Take: "Everyone was down on RIM and the stock was trading very low. As we saw last week, the stock got a pop on better-than-expected numbers. In RIM's case, franchise value exists. It still represents significant value. A lot of people don't understand that RIM is more than a handset maker. They have a very substantial network. Given how strained a number of these networks are, when RIM gets involved, they bring additional capacity and bandwidth. That's much more than other hardware makers can say."

Analyst Consensus: Twenty-five analysts rate the stock a "buy," and another 14 suggest that investors hold the shares. Six have a "sell" rating on RIM.

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Penske Automotive Group ( PAG)

Company Profile: Penske Automotive Group sells new and used cars and parts as well as financing and insurance services.

Closing Price: $11.98 (Sept. 17)

52-Week Low: $10.89 (July 6)

Rady's Take: "Penske has some of the most valuable franchises in the world. On top of that, they have one of the best management teams. The stock is trading at 10 times forward earnings. It has been basically cut in half and the market isn't paying attention to the intrinsic value that exists. It also gets more than half of its revenue from repair and maintenance. So even if you think the world is coming to an end and they won't sell another car, this company still has half of its revenue coming from recurring sources."

Analyst Consensus: Five research firms say investors should buy shares of Penske. Another two have a "hold" rating on the stock, while one firm says investors should dump the shares.

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Toyota

Company Profile: Toyota sells cars and trucks. It also provides financing and other services.

Closing Price: $71.51 (Sept. 17)

52-Week Low: $67.56 (Sept. 2)

Rady's Take: "Toyota's stock is down from $138 to $71. We bought it at $68. Let's say the recalls cost them $5 billion. This is a company with a $125 billion market cap, so the number doesn't matter. It's inconsequential and it's a transitory issue. To the people who have died or had trouble with their cars, it certainly matters to them. But from a financial perspective, this is a clear case of an opportunity to buy $1 for 50 cents. The franchise value exists. If anything, Toyota will make better cars because of the scrutiny. Over the years, this will become a distant memory."

Analyst Consensus: Only one analyst recommends buying shares of Toyota. Two research firms covering the automaker have "hold" ratings, and the rest say to sell.

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The Western Union Company ( WU)

Company Profile: Western Union is a money-transfer and payment company.

Closing Price: $16.98 (Sept. 17)

52-Week Low: $14.65 (July 1)

Rady's Take: "The stock is down from $28 to $16. It's trading at 12 times earnings, growing at about 12% to 15%. Given the global nature of the economy, we believe this company will continue to grow. We never want to own a company specifically for a takeover, but we think Western Union is a potential takeover target, especially given how cheap the stock is. Typically when a stock is attractive to us, it's attractive to potential acquirers."

Analyst Consensus: Fifteen of the 24 research firms covering Western Union have a "buy" rating on the stock. Another eight say investors should hold the shares, while one firm has a "sell" rating on the stock.

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Cobalt International Energy ( CIE)

Company Profile: Cobalt International Energy is an oil exploration and production company.

Closing Price: $9.40 (Sept. 17)

52-Week Low: $6.16 (May 27)

Rady's Take: "Cobalt has the most upside. The company has a pristine balance sheet. They were just about to start drilling their first well before the BP ( BP) disaster. That's good news for investors because they're not incurring any operating expenses. The net asset value of this company is somewhere in the mid- to high-$20s, and the stock is only at $9. While the timeframe as to when value gets unlocked is uncertain, we think that when it does get unlocked, the stock is potentially a triple. If we have to wait as long as two years to get a triple, then that's what we're going to do."

Analyst Consensus: Four of the six analysts covering the stock rate it a "buy." The other two researchers say investors should hold the shares.

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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