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3 Top Bargain Stocks to Buy Today

By Todd Campbell, Daniel Miller, and Timothy Green – Updated Oct 18, 2016 at 11:45AM

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Top stocks like Polaris Industries, Skechers, and Gilead Sciences sometimes go on sale, and when they do, it can be profit-friendly to buy them.

Image source: Getty Images.

A falling stock price can signal a deteriorating business, but sometimes a decline in share prices precedes catalysts that can send shares higher again. When that happens, picking up shares when they're on sale can be profit-friendly. With that in mind, we asked some of our top contributors to tell us what their favorite bargain-bin buys are today and they came back with these three picks.

Read on to see if these bargain stocks might be right for your portfolio.

A bumpy ride

Daniel Miller: Maybe calling Polaris Industries' (PII 2.13%) past 18 months a bumpy ride is being nice. Either way, it hasn't been a fun journey for investors that had grown accustomed to excellent financial performance. That abruptly changed in mid-September when management announced it was lowering full-year earnings guidance to the range of $3.30 to $3.80 per share -- a staggering $2.50 to $2.70 lower than previously expected.

PII Chart

PII data by YCharts.

That brutal earnings slash was due to RZR thermal-related repairs and expenses, which turned out to be more complicated than originally planned. As someone who covers the automotive industry, I can say that it's not unusual for major autos with large and expensive recalls to bounce back quickly, and Polaris should get back on track sooner rather than later.

The company has a phenomenal reputation for producing innovative products such as Slingshot, and well-known brands such as Indian Motorcycles, which have driven its top line higher. Management still expects to grow sales to $8 billion by 2020, a 12% compound annual growth rate (CAGR), and for its net income to increase to more than 10% of sales by 2020, a 13% CAGR.

One piece of evidence, in my opinion, that management believes this expensive recall to be a bump in the road rather than a new trend is the recent acquisition of Transamerican Auto Parts (TAP) for $740 million. It's a highly complementary business for Polaris with cost synergies and cross-selling potential. Polaris wouldn't be shelling out capital for such an acquisition if it wasn't confident in its ability to bounce back from the expensive recall. If Polaris can continue to innovate, reach its 2020 financial goals and bounce back from this expensive recall, there's no doubt it's a top bargain stock today.

A beaten-down footwear stock

Tim Green: Shares of footwear company Skechers (SKX 2.13%) have been hit hard over the past year as explosive growth has given way to merely impressive growth. During the second quarter, revenue rose by 9.7% year over year, well below the typical growth rates of 25% or more the company achieved over the past couple of years. After an analyst downgrade last month sent shares of Skechers tumbling further, I jumped on board and bought the stock near its 52-week low.

SKX Chart

SKX data by YCharts.

The rapid growth Skechers achieved over the past couple of years was never going to last forever, but I think the market has overreacted to the company's sales slowdown. Analysts expect Skechers to produce $1.80 in per-share adjusted earnings this year, putting the P/E ratio at less than 13. At that valuation, Skechers doesn't need to hit it out of the park in order to provide solid results for investors.

The company still has plenty of growth prospects, particularly in international markets, where revenue is still growing rapidly. During the second quarter, international and joint venture sales rose 34.6%, more than offsetting weakness in the domestic wholesale business. Things can certainly go wrong for Skechers, and if sales begin to decline or if margins begin to contract, I'll have to rethink my investment. But as it stands today, Skechers looks like a bargain.

Bargain-bin price with catalysts ahead

Todd Campbell: Gilead Sciences(GILD 1.87%) shares have fallen 24% this year because competitors have launched new hepatitis C drugs that are crimping sales. However, this is far from the first time that Gilead Sciences' shares have fallen out of favor with investors, and in the past, sticking by the company has made more sense than heading for the exits.

Over the past decade, Gilead Sciences' shares have experienced drops of 5% or more in 21 different months, including seven monthly declines in excess of 10%. Yet, investors who have held onto their position remain up 378% over the period. While there's no guarantee Gilead Sciences' shares will follow a similar path in the future, approaching this company with a long-term mindset could be smart; especially since this year's decline means that Gilead Sciences trades at a record low 6.4 times trailing-12-month earnings per share.

GILD PE Ratio (TTM) Chart

GILD P/E ratio (TTM) data by YCharts.

Ultimately, Gilead Sciences' shares won't head higher until management convinces investors that recent sluggish sales are stabilizing and that new drug launches can spark growth in the future.

Fortunately, there's some reason for optimism.

The company launched a next-generation hepatitis C drug, Eplcusa, this past summer, and it's in the midst of refreshing its entire HIV lineup of combination drug therapies. Both of those catalysts could help firm up sales over the coming year. 

There's also an opportunity to kick-start growth via new drug launches. Gilead Sciences' research and development pipeline includes therapies targeting multibillion-dollar indications, including non-alcoholic steatohepatitis, or NASH, and rheumatoid arthritis.

Overall, while there's no telling what the future holds for this (or any!) company, Gilead Sciences' track record makes me think it's worth giving this stock the benefit of the doubt. 

Daniel Miller has no position in any stocks mentioned. Timothy Green owns shares of Skechers. Todd Campbell owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences, Polaris Industries, and Skechers. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. 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.

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