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Joy Global Inc. (JOY), F5 Networks, Inc. (FFIV): The Two Best Rebound Stocks of 2013

One of the biggest investment stories of 2013 has surely been the ongoing slump in shares of Apple Inc. (NASDAQ:AAPL), which have fallen 21% this year after falling by a similar amount in the final months of 2012. Surprisingly, Apple Inc. (NASDAQ:AAPL) doesn’t have much company. Only eight companies in the S&P 500 have by 20% or more in the first half of 2013, which is an unusually small percentage. A rising tide has surely lifted (almost all boats) in this extended bull rally.

Still, it’s helpful to focus on companies with broken stock charts, because a few of them have so badly underperformed the broader market, and now sell at such severely low valuations, that they’ve become compelling bargains. Of course they are only compelling bargains if the key drivers are in place to help deliver improving results. I looked at these eight market laggards, and two of them caught my eye as solid rebound candidates.

It’s hard to spot a directional trend for Apple Inc. (NASDAQ:AAPL)’s shares right now, based on the fundamentals, though the company at least stopped the bleeding a few months ago by following my advice about buybacks and dividends.

1. Joy Global Inc. (NYSE:JOY)
This provider of mining equipment has felt the impact of a slump in the commodities sector. The company’s sales hit a recent cyclical peak at $5.6 billion in its 2012 fiscal year, and are likely to be stuck at around $5 billion in both the current fiscal year and fiscal 2014 as well. You have to look at to fiscal 2015 to spot an expected upturn, as sales are on expected to rise around 5% that year (to around $5.25 billion).

Joy Global Inc. (NYSE:JOY)

Yet even with the tepid sales outlook, Joy Global Inc. (NYSE:JOY) is still expected to post operating margins in the 20% range. And shares trade for less than nine times projected fiscal 2013 profits, and less than 5.5 times EBITDA (earnings before interest,taxes, depreciation and amortization), on anenterprise value basis. Free cash flow, which is expected to dip below $300 million in the current fiscal year, should rebound above $500 million in fiscal 2014 and 2015, thanks to reduced capitalspending, and headcount reductions, according to analysts at Citigroup. Management is expected to use that cash flow to reduce the share count by up to 10% over the next two years.

Though it may seem counterintuitive, the best time to buy cyclical stocks like this is when they are at the bottom of the cycle — as long as they still generate solid cash flow in that phase of the cycle. Back in early 2011, when investors were paying nearly $100 a share for this stock, they were unwisely expecting a mining boom that would lead to an acceleration in earnings for stocks like this. It’s when expectations (and share prices) for cyclical stocks are already robust, investors should be looking to sell. Joy Global Inc. (NYSE:JOY) may have few near-term fans now — but it’s built to flourish when the first signs appear that the commodity cycle has bottomed out.

2. F5 Networks, Inc. (NASDAQ:FFIV)
A decade ago, Fortune 500 companies sought to establish distinct computer networks for each of their operations. Employees interacted on one network, clients on another, and telecom systems on yet another. These days, that approach has been replaced by the use of one massive network, which enables the company’s IT managers to more closely integrate all of the various communications and computing processes on one platform, which can also save a great deal of money in terms of hardware and software purchases.

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