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3 Stocks That Could Represent Bargain Opportunities

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- By Alberto Abaterusso

The three stocks listed below have underperformed the broader market recently. They are also in considerable financial distress, as represented by poor Altman Z-Scores, which indicate bankruptcy is possible within two years.

Nevertheless, their operating activities are profitable, as indicated by GuruFocus profitability ratings of at least 6 out of 10. They also have positive recommendations on Wall Street. Thus, they have the potential to improve their conditions, though investors should keep an eye out in case things take a turn for the worse.


USD Partners LP

The first stock that meets the above criteria is USD Partners LP (NYSE:USDP), a Houston, Texas-based developer and operator of midstream infrastructures and provider of logistics solutions for producers of crude oil, biofuels and other energy-related products in North America.

The stock has an Altman Z-Score of 0.65, which indicates distress.The interest coverage ratio of 2.47 indicates that the company can continue paying its interest expenses for the time being.

GuruFocus has assigned a rating of 7 out of 10 to the company's profitability, driven by an operating margin of 18.81% (versus the industry median of 4.35%).

The share price ($5.01 as of Feb. 1) has declined sharply over the past year, as you can see in the below chart.

3 Stocks That Could Represent Bargain Opportunities
3 Stocks That Could Represent Bargain Opportunities

One analyst on Wall Street predicts it will bounce back strongly within a year, setting a buy recommendation and a price target of $13 per share for a 159.5% upside.

The market capitalization is $148.98 million, the 52-week range is $1 to $10.64 and the forward dividend yield is 8.86% (based on a quarterly cash dividend of 11.1 cents per share to be paid on Feb. 19).

Essential Utilities Inc

The second stock that meets the criteria is Essential Utilities Inc (NYSE:WTRG), a Bryn Mawr, Pennsylvania-based regulated utilities supplier of water or wastewater services in the U.S.

The stock has an Altman Z-Score of 1.08, indicating distress. The interest coverage ratio of 2.28 indicates that the company can continue paying its interest expenses for the time being.

GuruFocus has assigned a rating of 7 out of 10 for the company's profitability, driven by an operating margin of 31.87% (versus the industry median of 13.44%) and a net margin of 20.28% (versus the industry median of 7.57%).

The share price ($47.12 as of Feb. 1) has decreased sharply over the past year by 12.30%, as you can see in the below chart.

3 Stocks That Could Represent Bargain Opportunities
3 Stocks That Could Represent Bargain Opportunities

Wall Street sell-side analysts project that the share price will start up-trending again, rising 14.24% up to a $53.83 price target within a year. The stock has a median recommendation rating of overweight.

The market capitalization is $11.56 billion, the 52-week range is $30.40 to $54.52 and the forward dividend yield is 2.13% (based on a quarterly cash dividend of 25.1 cents per share to be paid on March 1).

ONE Gas Inc

The third stock that matches the criteria is ONE Gas Inc (NYSE:OGS), a Tulsa, Oklahoma-based regulated distributor of natural gas in the U.S.

The stock has an Altman Z-Score of 1.16, indicating distress.The interest coverage ratio of 4.78 indicates that the company can continue paying its interest expenses for the time being.

GuruFocus has assigned the company a profitability a rating of 6 out of 10, driven by an operating margin of 20.05% (versus the industry median of 13.44%) and a net margin of 12.63% (versus the industry median of 7.57%).

The share price ($73.83 as of Feb. 1) has fallen significantly over the past year, as the below chart illustrates.

3 Stocks That Could Represent Bargain Opportunities
3 Stocks That Could Represent Bargain Opportunities

Wall Street predicts a share price rebound of 6.3% with a target price of $75 per share. The stock has a median recommendation rating of overweight.

The market capitalization is $3.92 billion, the 52-week range is $63.67 to $96.97 and the forward dividend yield is 3.14% (based on a quarterly cash dividend of 58 cents per share to be issued on March 5).

Disclosure: I have no positions in any security mentioned in this article.

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This article first appeared on GuruFocus.