3 Beaten-Down Stocks Ready to Bounce Back - Motley Fool
Our experts are bullish on these three beaten-down stocks. Image source: Getty Images.
Sometimes the best stocks to buy are ones the market has recently beaten up, bloodied, and turned its back on. The hard part, of course, is knowing which of those stocks are down for good, and which are great businesses that are primed to recover, and then investing accordingly.
With that in mind, we asked three of our top contributors to tell us about a company that Mr. Market has beaten down recently but that looks ready to bounce back in a big way.
They offered up HollyFrontier Corp. (NYSE:HFC),General Motors Company(NYSE:GM), andPACCAR Inc. (NASDAQ:PCAR), all of which have seen their stocks fall substantially from their 12-month highs:
HFC data by YCharts.
Keep reading to learn why our contributors say the stocks of these three companies are set to rebound.
HollyFrontier: A value play on an ultra-efficient refiner
Tyler Crowe:As the price of oil has slowly crept back into the $50-per-barrel range, refining stocks have been getting crushed. Those higher crude prices have caused average refining margins to decline precipitously for several quarters, sending shares of oil refiner HollyFrontier (NYSE:HFC) way down in 2016.
HFC data by YCharts.
Sure, refining stocks will come and go with the price difference between crude oil and refined products. What sets refining companies apart, though, is their ability to run their facilities at high utilization rates and keep operational costs per barrel low. This is something HollyFrontier has excelled at, and management is spending on capital projects that should improve it even further in the coming years. In fact, it's management's ability to effectively allocate capital that has allowed the company to generate some of the best returns on capital employed in the refining business.
Image source: HollyFrontier investor presentation.
With shares trading at 1.7 times tangible book value -- its lowest in 15 years -- and a dividend yield of 5.33%, HollyFrontier looks incredibly cheap today. If management's recent history of generating returns for shareholders is any indication, then buying shares today should make for a decent investment.
GM: Well positioned in an evolving auto industry
Daniel Miller: If you're looking for beaten-down stocks, you can find more than a handful within the automotive industry -- but some of them could offer investors great value, despite a potential slowdown in U.S. new-vehicle sales. General Motors (NYSE:GM) is far from the company it was a decade ago, and it's well positioned to survive in the evolving auto industry.
"I absolutely think, and we think, we're undervalued right now," General Motors CEO Mary Barra said before GM's annual meeting, according to Automotive News. "We're going to continue to work to keep making sure people understand exactly the mission of General Motors and what we're working toward. I believe that as we continue to do that, that's something that will take care of itself."
General Motors has done an excellent job of improving its operations in the present, while focusing its strategy for the future of the evolving automotive industry.
In the wake of slashing its number of global vehicle platforms, cutting costs, and leveraging its scale with its suppliers, GM has improved its return on invested capital on a rolling four-quarter basis to 28.5% as of the first quarter. Also, GM has focused on reducing its sales to fleet channels, which has sent its total sales lower but has helped boost transaction prices, margins, and residual values on its vehicles.
While the improvement GM has made in its operations has been impressive, arguably even more impressive has been its quick reaction to a rapidly changing auto industry. GM has created Maven, a brand umbrella that will cover its ridesharing and mobility projects, invested in Lyft to develop ridesharing projects, and acquired Cruise automation to focus its efforts on autonomous driving. GM even showed off its Chevrolet Bolt electric vehicle, which will have a range of more than 200 miles for a price tag of roughly $30,000.
GM is extremely profitable and should remain so even during a downturn. It's more focused on adapting to an evolving auto industry than ever before, and it trades at a cheap 5.0 forward price-to-earnings ratio, according to Morningstar's estimates, with a dividend yield of 5.27%.
PACCAR: A stalwart trading for a nice discount
Jason Hall:Even after rebounding nearly 16% since the beginning of 2016, shares of heavy-duty-vehicle maker PACCAR are still about 20% below their 12-month high, and not without some justification. After all, heavy-duty-truck sales are expected to decline in North America this year after a very strong 2015, and North America is by far the company's biggest market.
Add in the impact of a nearly $1 billion charge last quarter -- related to a European Commission investigation of multiple truck makers and potential charges of price-fixing -- that led the company to report a net loss, and there's a reason Mr. Market has turned his back on the company.However, I think the beat-down is probably a bit overdone, and it's created an opportunity for investors to pick up shares at a pretty good price.
On the surface, PACCAR shares may look expensive, using common metrics like trailing price-to-earnings:
PCAR PE Ratio (TTM) data by YCharts.
However, that factors last quarter's $943 million charge -- which is part of its GAAP financial results -- into the multiple. And of course it should, since the company has set that cash aside to deal with the likely fines it will end up paying to resolve this investigation. And that's a very material event. However, it gets in the way of evaluating the company's ability to make money going forward.
If we look at the forward P/E ratio, which is based on estimates of the company's earnings for the next year, we get a little clearer view of the company's valuation:
PCAR PE Ratio (Forward) data by YCharts.
While PACCAR's stock isn't as dirt cheap as it was six months ago, it's still trading below its more historical forward P/E ratio.
I'm not saying you should just dismiss a potential billion-dollar fine out of hand. But I am saying that since it's not a recurring cost, and PACCAR has already recognized a sizable loss because of it, don't throw the baby out with the bathwater.
PACCAR is one of the best truck manufacturers in the world, with world-class operating efficiencies and strong market share. If you look beyond the GAAP results at the potential of its operations, PACCAR's shares look pretty cheap today and poised to bounce back in the coming years.
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Insurance Commissioner: Allstate proposed 'massive' insurance rate hike without approval - 11alive.com
MIAMI - JANUARY 17: An Allstate insurance company sign is seen outside one of its stores January 17, 2008 in Miami, Florida. (Photo by Joe Raedle/Getty Images) (Photo: Joe Raedle, Custom) ATLANTA - A warning for Allstate insurance customers you may be soon victim to sticker shock.
The insurance company giant is implementing rate hikes on some of its policies of up to 58.3 % a huge increase. But the Georgia Department of Insurance is trying to fight back to keep this from happening.
Insurance Commissioner Ralph Hudgens told 11Alives Kaitlyn Ross Monday the announcement really came out of nowhere. He says he's been at the job for six years and has never seen anything like it.
(Its) massive, he said. And Allstate insures 11 percent of the autos."
Hudgens says Allstate didn't wait for his approval or even ask for it. He says the normal process for insurance companies in the state is to come to his office with a proposal, and then they'll meet somewhere in the middle.
They say, We need 15, and we say, We'll give you eight. This time, Allstate just told them about the rate hike and walked away. I can't imagine that they would not come in to us and discuss this, Hudgens said.
In a statement, Allstate told 11Alive News they considered the rate increase carefully, and it will impact less than half of their customers in Georgia. But Hudgens says his agency exists to make sure consumers are protected and Allstate moving forward with this hike without going through the process is unfair.
Hudgens has now issued a consumer alert to give drivers a heads up if they have Allstate, and says they should consider if they want to keep it. He recommends looking at the competition to get a competitive rate.
The Department of Insurance has now commissioned an actuarial study to see if this rate increase is really necessary to cover Allstates costs. It will take about a month to complete, but if the independent reviewer finds the increase is unnecessary, they could force the company to repeal the rates.
Read Allstate's statement in its entirety:
By offering a broad range of innovative protection options, Allstate provides strong value to our customers. We adjust rates very carefully to charge properly for the risk we assume and ensure our ability to protect customers from lifes uncertainties. This particular rate filing applies to one of Allstates three underwriting companies in GA and represents less than half our auto insurance business in the state.
We work closely with state departments of insurance whenever we adjust our rates, and look forward to a continued dialogue with the Georgia Department of Insurance. As is industry standard, changes in market conditions require that we set rates that are adequate for the coverage we provide. Increases in the number of miles driven, the amount of traffic fatalities, and the costs associated with repairing vehicles have caused the insurance industry to experience a significant increase in both the number of claims received as well as the cost associated with settling these claims.
We encourage all our customers to regularly consult with their Allstate agent about the most appropriate coverage and available discounts for their particular circumstances.
Personal Finances And Getting Yours Under Control
If you are on a limited income, isn't always easy, managing your finances, especially. If you are going to avoid going into debt or worse, it is vital, however. The advice in this article can help you control your spending and help you avoid becoming a credit card debt statistic.
Repairing your credit can lead to paying less money in interest. A lower credit score means higher interest rate on your credit cards and other loans, which means you end up paying more in finance charges and interest. Repair your score and drop these rates in order to save more money.
If you are trying to get the best credit score, you shouldn't have more than four credit cards. One card will not sufficiently build up your credit. Over four cards can drag your score down and be difficult to manage. Begin with just two cards to raise your credit you can always add more when it becomes necessary.
Set up a bank account for emergency funds, and do not use it for any daily expenses. An emergency fund should only be used for any unexpected expense that is out of the ordinary. Keeping your emergency fund separate from your regular account will give you the peace of mind that you will have money to use when you most need it.
To better maintain your finances, it is a good idea to have two separate bank accounts. Use one for your monthly expenses like food, bills and rent, and the other to save for emergencies or major purchases. It is also sensible to put money away in an account you never touch so you can build up your savings.
Speaking to a financial planner may be the best course of action for that individual if one is lost on where to start taking control in their personal finances. The planner should be able to give one a direction to take with their finances and help one out with helpful information.
You can often find great deals if you go shopping on the infamous Black Friday. You can wake up at the crack of dawn to get into stores as they open up and be the first person to get the best deals, which will greatly improve your personal finances, if you are truly dedicated.
Support from the people you love is one of the best ways that you can improve your motivation to succeed from a monetary perspective. Surround yourself with your friends and family and tell them about the goals that you wish to achieve. Therefore, you will have people to help you get back on the right path again if you ever get off track.
Never use your credit card for a cash advance. Just because your card offers it doesn't mean you should use it. The interest rates on cash advances are extremely high and utilizing a cash advance will hurt your credit score. Just say no to the cash advance.
Study your losses and learn from them. Many people like to ignore their move and losses on, but investigating them helps you to avoid making the same mistakes again. And after all, these mistakes cost you money consider them a mini-course in what not to do and then you move on.
When it comes to personal finances, one of the best ways to simplify is to automate. Rather than manually transferring money into different accounts such asinvestments and savings, and more- schedule these payment to transfer automatically each month. You'll never have to worry that you've forgotten to move your money where it needs to be.
Don't just accept any savings account to hold your money. You need to find an account that will protect your funds against inflation. Ideally, you need a high-yield savings account. This will allow you get a better return on your money. Just check whether the rules regarding withdrawing from the account (if you need to have access to the money at short notice), and that there is no investment risk.
Work from home whenever you can to save money. Truthfully, working in an office can be expensive. Almost half of your paycheck goes to parking, food and gas, and that's before you're even paid.
The easiest and most obvious way to give yourself more financial breathing room is to ask for a raise. Use this information to negotiate your way to better pay if you have been with your company for over a year without a raise and research shows that their competitors are paying as much or more to their employees in comparable positions.
There is currently a debate waging over whether you should save all your money or invest it instead. Split up your efforts if in doubt. Saving 70% and investing 30% is a smart move. You can make it an even smarter move by thoroughly vetting the place in which you will be investing your capital.
Cut out that unused land line. A paid in advance cell phone could be significantly cheaper in the long run if you don't talk on the phone much. Some mobile cell companies offer 1000 minutes of prepaid time for $100. This can last some people a year. For comparison, most land lines would cost $300 or more for that same year of service.
Regularly read the business section of the paper. This will constantly offer many valuable tips on saving money and getting your personal finances in order, It will also help you stay updated on markets and maybe even will help you decide when a good time to invest money in stocks would be.
Make a list of your bills and put it in a prominent location in your home. This way, you will be able to always have in mind the dollar amount you need to keep yourself out of financial trouble. You'll also be able to look at it when you think of making a frivolous purchase.
As was stated in the beginning of this article, personal finance managing can be grueling. However, you do not have to be clueless on the subject. Hopefully, this article has provided you with advice that can help get your finances back on track and help you to live a more comfortable life.
Mortgage Applications Drop on Depressed Refinance Activity
Mortgage application activity fell once again as refinance volume dropped to its lowest level since September 2014, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.
There was a 2.3% decline in application volume on a seasonally adjusted basis for the period ending April 24. The seasonally adjusted purchase index remained unchanged, while the refinance index plunged 4% during the same time span.
Overall, the refinance share of mortgage activity fell to its lowest level since last September at 55%.
Other mortgage types saw gains, however. The FHA share of total applications increased to 13.7% from 13.6% a week prior, while the VA share lifted to 11.3% from 11% during the same period.
Adjustable-rate mortgages also grew their share of total activity to 5.7%, but the USDA share yet again remained steady at 0.8%.
As for interest rates, the results for the week were more of a mixed bag. The contract interest rate for 30-year fixed mortgages with a balance above $417,000 dropped one basis point to 3.82% from 3.83%. The average contract interest rate for 5/1 adjustable-rate mortgages also decreased by one basis point to 2.88%.
Otherwise though, interest rates rose modestly. For 30-year fixed conforming mortgages below $417,000 the average interest rate increased two basis points to 3.85%. The average interest rate for 30-year fixed-rate mortgages backed by the FHA rose by one basis point to 3.65% and the average rate for 15-year fixed-rate mortgages grew to 3.14% from 3.11%.
FHALoanTexas.com has been helping homeowners and residents in Houston, Austin, Dallas, and San Antonio learn the ins and outs about FHA lending for over 20 years. We specialize in free advice to anyone that is looking to learn more about how these types of loans work.
