The stock market is off to a rough start for the year, and many great businesses have seen their stock prices fall for no good reason. That could make right now a great time to go shopping for strong companies that are suddenly trading in the discount bin.
We asked our team of Motley Fool contributors to share the name of a great company that they think is on sale right now. Read on to see which stocks they highlighted.
Tyler Crowe: One company that has looked pretty intriguing for a while is HollyFrontier (NYSE:HFC). Oil refining has never been a sexy industry, and profits do tend to fluctuate as the price between crude oil and refined products changes. What sets a good refiner apart from others is the company's ability to control its costs and invest in the business. This is what makes HollyFrontier so compelling.
The company's management team has built a solid reputation in the oil refining industry as one of the best capital allocators in the business. This disciplined investment principle has been one of the main reasons HollyFrontier has been able to produce some of the best returns on capital employed and net income per barrel produced among the independent U.S. refiners over the past five years.
Management at HollyFrontier has also been generous to shareholders. On top of the company's regular dividend, it was paying a special cash dividend on top up until recently. Now that shares are selling at a pretty decent discount, management has taken that special dividend and used it in a $1 billion share-repurchase program. With shares close to 30% off their highs in 2015 and a nice regular dividend yield of 3.4%, HollyFrontier looks like a great pickup in 2016 in the energy sector.
This company is unlike many of its peers, as 99% of its profits are tied to fee-based activities. That means its profits are unaffected by huge swings in commodity prices, which makes its earnings extremely stable. The company then passes the majority of its profits back to investors in the form of dividends, and with a huge pipeline of projects currently in development, its dividend is poised to continue to grow over the coming years.
Early this week, the company raised its dividend by 9%, giving it a new annual payout of $1.62 per share. Still trading near their yearly low, shares currently boast a strong dividend yield of nearly 6.5%, and the company believes that its coverage ratio in 2016 will be roughly 1.2, which should make its payout secure. Spectra Energy also expects that it will be able to raise its dividend by another $0.14 next year, which means this company's shares offer yield, growth, and value right now.
Tim Green: Shares of networking giant Cisco Systems (NASDAQ:CSCO) were essentially flat in 2015, despite solid performance from the company. After a rough 2014, driven in part by weakness in emerging markets, Cisco has returned to growth, generating record revenue during fiscal 2015. During Cisco's latest quarter, revenue increased by 4% year over year, while non-GAAP EPS jumped 9.3%.
Cisco generated about $11.6 billion of free cash flow over the past 12 months, or about $10.2 billion backing out stock-based compensation, which I like to exclude in these types of calculations. On the balance sheet, Cisco has about $34.5 billion of cash net of debt, which translates into around $6.75 per share. Backing out this net cash, shares of Cisco trade for just 9.6 times the adjusted free cash flow. For a company as dominant as Cisco, this valuation seems overly pessimistic.
Cisco's core switching and routing businesses are growing again, albeit slowly, and smaller segments offer long-term growth potential. Cisco has become a top-five server vendor with its UCS line of servers, and the data-center segment containing these servers grew by 24% year over year during Cisco's latest quarter. Security is also a major growth area, and while growth has been sluggish in recent quarters, the company has been making quite a few acquisitions in the space, and it expects growth to pick up in 2016.
Long-term growth opportunities, a bargain valuation, and a dividend yield of about 3.2% all combine to make Cisco a great stock for investors to consider.
Steve Symington: I think now is the perfect time for investors to loosen their belt buckles and enjoy a heaping serving of Buffalo Wild Wings (NASDAQ:BWLD) stock. Shares of the wings, beer, and sports-centric restaurant chain have fallen around 15% over the past year as of this writing, primarily thanks to a steep drop this past October after B-Dubs released weaker-than-expected third-quarter 2015 results.
To be fair, Buffalo Wild Wings stock doesn't look cheap at first glance, trading around 33 times trailing-12-month earnings, and almost 24 times next year's estimates. But given its long-term growth potential, I think that's a perfectly fair premium to pay for a business of this caliber.
For perspective, earnings were under pressure in the most recent quarter in part because it's taking Buffalo Wild Wings longer than expected to fully digest its recent $160 million acquisition of 41 franchised locations. Costs associated with training and transition of ownership negatively affected earnings by $0.13 per share, and held back same-store sales growth by roughly 80 basis points last quarter. According to management, Buffalo Wild Wings should begin seeing the fruits of this investment on both its top and bottom lines in 2016.
Buffalo Wild Wings is also seeing encouraging consumer response to its brand overseas, but still only counts 13 international locations among its 1,142 total restaurants. Going forward, B-Dubs says international franchisees are expected to accelerate their pace of expansion in the coming years.
Finally, as I wrote shortly after last quarter's call, Buffalo Wild Wings' smaller restaurant concepts -- including street taco specialist R Taco and fast-casual pizza chain PizzaRev -- are gearing up for more aggressive stateside growth as we speak. And management has voiced its intention to invest in as many as seven more small restaurant concepts over the next five years.
In the end, for investors willing to watch as Buffalo Wild Wings realizes its long-term goal of becoming a 3,000-restaurant business of diversified brands, I think the recent pullback is a great opportunity to open or add to a position.
Brian Feroldi owns shares of Buffalo Wild Wings, Kinder Morgan, and Spectra Energy. Brian Feroldi has the following options: long January 2016 $32.5 calls on Kinder Morgan, short January 2018 $30 puts on Kinder Morgan, long January 2016 $40 calls on Kinder Morgan, short January 2016 $30 puts on Kinder Morgan, long January 2017 $35 calls on Kinder Morgan, and short January 2017 $35 puts on Kinder Morgan. Matt DiLallo owns shares of Kinder Morgan. Matt DiLallo has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. Steve Symington owns shares of Buffalo Wild Wings. Timothy Green owns shares of Cisco Systems. Tyler Crowe has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Buffalo Wild Wings, Kinder Morgan, and Spectra Energy. The Motley Fool recommends Cisco Systems. 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.