About a month ago I penned a piece that argued it was time to lighten up on the refiner stocks. The reasons for my call were based on the sector had enjoyed a huge run up over the previous twelve months, the stocks were selling way over their 200 day moving averages and that new mandates from the federal government were going to be more troublesome/costly that was being factored into their stock prices. Since that article, a lot of these stocks have declined 10% to 20%. Some of the stocks in the sector seem to have rid themselves of excess valuation and it could be a good time to start to increase exposure to the sector by adding allocation slowly. One stock that does look like it has overcorrected is HollyFrontier (NYSE:HFC). The stock has come down from $58 a share in late February to a current level of just above $46 a share. Value investors should consider added these cheap shares to their portfolio on any additional dips.
HollyFrontier operates as an independent petroleum refiner and marketer in the United States. The company operates 5 refineries with a combined crude oil processing capacity of 443,000 barrels per day.
7 reasons HFC offers value at just $47 a share.
- The stock sells for just 5.6x trailing earnings, a deep discount to its five year average (27.2).
- The 16 analysts that cover the stock have a median price target of $60.50 a share on HFC, around 30% above the current stock price. S&P has a "Buy" rating on the stock.
- HFC is selling near the bottom of its five year valuation ranged based on P/B, P/E and P/CF.
- The stock yields 2.6% and the company has more than doubled its dividend payout over the past five years.
- An insider bought over $100K of stock in late March, it was the first insider purchase in last May.
- The company has a very solid balance sheet with over $1B in net cash on the books.
- HollyFrontier has raised operating cash flow by some 500% over the last two completed fiscal years and HFC sells for less than 6x operating cash flow.
Disclosure: I am long HFC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.