Value investing proponent Benjamin Graham said stock markets behave like voting machines, but in the long term they act like weighing machines. This statement has withstood several tests and has been amply exemplified by no one else but Warren Buffett. Markets often tend to react in extreme directions and create opportunities this way. Recent slides in the prices of Titan International Inc (NYSE:TWI), CVR Energy, Inc. (NYSE:CVI), and Delek US Holdings, Inc. (NYSE:DK) could be a rare opportunity for investors to go long in strong companies at discounted prices. Here is how:
Titan International Stocks Declined
Titan International Inc (NYSE:TWI) has declined 31 percent over the last month. The company is one of the largest producers of wheels and tires for agricultural, earth moving and construction industries. The reason behind this massive fall is a couple of analyst downgrades which in turn found roots in the company’s disclosure that it would face short-term weakness due to high inventory levels in the tire aftermarket. In addition, a couple of quarterly earning misses gave all the more reason for bears to hammer the stock.
However, a look at fundamentals reveals market players may be exaggerating the impact. At a forward price earnings ratio of 7.5, the stock is attractively priced. Its price by book value ratio of 1.27 and a debt equity ratio of 1.3 also indicate fundamentals are in place. While it is true that nothing is indispensable in markets, Titan International Inc (NYSE:TWI) has a slight edge in being specifically focused on agricultural and earth moving industries.
Titan International Inc (NYSE:TWI) is one of the few to offer the wheel and tire assembly in one combined unit. This way, it faces a lot less competition than companies in other industries. This allows the company to successfully pass on higher costs to its clients.
CVR Energy – Refining Negative
CVR Energy, Inc. (NYSE:CVI) is a similar case—it has seen value erosion of 25 percent over the last month. This Texas-based inland oil refining giant has been at the receiving end as a narrowing gap between North Sea Brent and West Texas Intermediate, and its position is likely to affect its operating margins going forward. This is a very valid concern as the wide spread was primarily the factor behind refiners’ bumper margins in the past.
However, these concerns are overblown as the spread has likely shrunk to the lowest level. This means the stocks may be posting weak financial numbers for the June quarter but these expectations are very well factored into current discounted prices. Owing to these concerns, Goldman Sachs downgraded the stock to Sell with a price target of $56. The stock has already breached this level and now trades at $45 which means the correction may be overdone. The stock is a dividend champion with annualized yield of 6.7 percent.
Delek US In A Bear Grip
Delek US Holdings, Inc. (NYSE:DK) is also in a bear grip and has lost nearly 20 percent in the last 30 days. Concerns for this Tennessee-based independent are the same as those which have been weighing on other inland refining companies. Refining is the largest segment of the company and its margins have material impact on the overall profitability of the company. For the quarter ended March 31, 2013, refining contributed over 75 percent to the revenues but its contribution to consolidated segment margin was in excess of 90 percent.
While this over-reliance on refining operations paints a gloomy picture for Delek US Holdings, Inc. (NYSE:DK), the stock has corrected way too much already and now trades at levels seen six months ago. A forward price earnings ratio of 7.7, debt equity ratio of 0.4 and a dividend yield of 2 percent are some metrics which indicate the stock is firmly placed in the value territory.
Overall, Titan International Inc (NYSE:TWI) presents a great opportunity for long term investors to get a slice of a robust business model. While refinery stocks also offer value, there may be better entry points when these companies report quarterly results next month.