This it truly turning out to be a summer of discontent. The high heat that is baking much of the nation has led to the thought of vacations sitting by the air conditioner. Turning on the computer gives little respite for active investors. After a tough second quarter, the third quarter is looking problematic as well. Fresh troubles in Europe, coupled with a tepid U.S. earnings season has left many to conclude that the summer doldrums may take stocks yet lower in coming weeks of July and August.

Still, as we grind lower, you need to keep close tabs on the market. Fresh bargains are emerging and could have significant upside later this year — if the market pulls off yet another fourth-quarter rebound — as was the case in 2010 and again in 2011. There are ample areas to find value, though an especially fertile one can be found among stocks making multi-year lows. Broadly speaking, these companies are having a tough 2012, but their stock prices have hit an even rougher patch, skidding to levels that are far too low. I’ve been looking at dozens of stocks making fresh multi-year lows and here are three that look ripe for a rebound.

1. GameStop (NYSE: GME)
I’ve been quite bearish on this video games retailer for quite some time. In October 2011, with shares trading at around $26, I noted it actually looked reasonably-priced in the context of various valuation measures, but that investors were under-estimating the headwinds in place that would erode sales and profits.

The fact that sales growth has now petered out and analysts have been modestly trimming profit forecasts, explains why shares finally broke down.

Now, with shares at $16 — the lowest level since 2005 — I’m singing a different tune. Though business conditions remain challenged, investors have grown suddenly impatient with the whole industry because there are few hot new gaming titles right now, nor is there a growth-inducing new gaming platform to spark investor interest. Indeed gaming stocks such as Electronic Arts (NYSE: EA), Take Two Interactive (Nasdaq: TTWO), THQ (Nasdaq: THQI) and others are also trading poorly. All look ripe for a rebound into the fall and winter as new consoles and titles hit the market. This should bring renewed interest to GameStop, which is now awfully cheap.

#-ad_banner-#The console upgrade cycle has always been key for this sector. This fall, Nintendo will roll out the next version of its popular Wii platform. And looking ahead to 2013, we’ll get upgrades to the Sony (NYSE: SNE) PlayStation and the Microsoft (Nasdaq: MSFT) Xbox. GameStop’s management has also been working to move past the console end of the gaming market, pouring a lot of resources into the digital-download market.  At best, those moves are likely to keep sales from falling further. GameStop looks likely headed for an expected period of annual sales in the $9 to $10 billion range.

Still, this is a highly profitable company, even in the face of anemic sales growth. In fiscal 2011, GameStop generated $450 million in free cash flow, which helped the company pay off its debt and buy back more than $300 million in stock. The company has bought back more than $100 million in stock as of July, 2012, with another $450 million remaining on a current buyback plan. Shares outstanding are on track to fall from 168 million in fiscal 2009 to around 134 million by the end of fiscal 2012. In that time, the company has also retired $545 million in debt.

With shares trading for less than six times projected 2013 profits in July, a newly debt-free balance sheet and a fast-shrinking share count, value investors can find plenty to like in this lagging stock.

2. Imation (NYSE: IMN)
This is a “free” stock. This media storage company is valued at $205 million but has $216 million in cash. It also has nearly $800 million in other assets, no debt and tangible book value of $371 million. Shares hit a 15-year low on Monday, July 23, and are now  too cheap to ignore. Management would be wise to aggressively buy back a lot of stock while shares trade far below tangible book value.

3. GM (NYSE: GM)
Shares of this auto maker slipped below $19 in early Monday trading — for the first time since they began trading again in late 2010. That’s not the outcome expected when the shares first hit the market and were making a quick run for the $40 mark. Notably, GM is a much stronger company than at any time in recent memory. The balance sheet is extremely strong and after a long drought, the new product cycle is kicking in, headlined by a major new truck launch. The new management team concedes there’s more work to be done in terms of streamlining overhead, and problems in Europe are surely keeping them busy as well.

It’s important to note that earnings power is being constrained, and will barely top $3 a share this year, but could hit $5 by mid-decade. The move under $20 makes this a compelling opportunity for those willing to ride out the near-term storms.
        
Risks to Consider: These stocks won’t rally until the market stops falling. Even then, patience will be required as near-term quarterly results could be tepid in this slow economy.

Action to Take –> All three of these stocks sport very strong balance sheets, though there shares trade at multi-year lows. It’s only a matter of time before value investors seize on the disconnect.