Picking up stocks when they're trading near their 52-week lows is a popular investing strategy. The general idea is that if you buy stocks at cyclical lows, then you can sell them higher when they rebound. That doesn't always work out, because sometimes stocks have lost value for good reasons. What you really need to look for are stocks near their 52-week lows that appear to be mispriced. If you can find a company with a strong core business and a cheap stock price, then you've found a real value stock that's worth buying. I think these two fit that description.
Image source: Getty Images.
Microsoft (MSFT +5.00%) has had a rough go as of late; the stock is down by around 30% from its all-time highs. Although it bounced from the 52-week low that it reached in April, this month, it has been sinking back toward that level again.
The sell-off doesn't make a ton of sense because Microsoft's business looks fantastic. In its fiscal 2026 third quarter (which ended March 31), revenue rose 18% year over year.
In addition, Azure cloud revenue increased by 40%, and its AI segment's annual revenue run rate rose 123% to a $37 billion. Looking just at those figures, one would not expect Microsoft's stock to be doing so poorly.
From a valuation perspective, it also looks like an absolute steal. Because Microsoft's fiscal year ends on June 30, it's best to use next year's earnings projections to gauge the forward valuation of the stock.
MSFT PE Ratio (Forward 1y) data by YCharts
Trading at just over 19 times next year's expected earnings, Microsoft is cheaper than the S&P 500 (^GSPC +0.06%), which trades for 22 times forward earnings. That's a low price to pay for a company that by all accounts is doing quite well.
Many investors have written off Adobe (NASDAQ: ADBE) as an AI victim. This sentiment makes sense, as a lot of the things that Adobe's creative design software has long helped artists do are things that can, in principle, be handled by AI. However, that hasn't been the case yet. The reality is that AI programs don't offer the level of control that Adobe's products offer, and for graphic designers, control over the final product is everything. Instead of abandoning its current products, Adobe is integrating AI features into its ecosystem to give creators both the enhanced tools they want and the control they demand. This helps explain why Adobe's revenue growth has stayed fairly steady during a period when the pundits were predicting that AI was about to destroy its business.
ADBE Revenue (Quarterly YoY Growth) data by YCharts.
As a result, it's looking like smooth sailing ahead for Adobe, and it continues to be a solid, long-term grower. However, the market isn't valuing the stock highly because it's still worried about how AI will impact this business.
ADBE PE Ratio (Forward) data by YCharts.
Adobe's stock now trades for just 8 times forward earnings. That's incredibly cheap. Few established companies ever trade so low, let alone software companies. Adobe is doing the smart thing by repurchasing shares while they are discounted, which should result in its earnings per share growing faster than revenue over the long term.
For a share price turnaround to occur, the market would first need to change its opinion about the company's prospects, and it could be awhile before that happens. Sometimes, the market adopts a negative mindset about a company and just holds on to it. When that happens, a good company can trade at a cheap valuation for years before the market comes to its senses and sends it higher. Or the pessimism can become a long-term fixture. While Microsoft and Adobe appear to me to be solid values, there is no guarantee that the market will adopt that view.
However, I think turnarounds will eventually come for both stocks, making them solid picks to buy now.
Keithen Drury has positions in Adobe and Microsoft. The Motley Fool has positions in and recommends Adobe and Microsoft. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Microsoft's and Adobe have been hammered by the market.
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