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3 Beaten-Down Stocks Ready to Bounce Back

HFC Chart
HFC Chart

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.

PCAR PE Ratio (TTM) Chart

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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Daniel Miller owns shares of General Motors. Jason Hall has no position in any stocks mentioned. Tyler Crowe has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Paccar. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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