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Wall Street Has Given Up on These 3 Stocks, and That's a Huge Mistake

By Rich Smith - Jan 28, 2020 at 9:05AM

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Big declines in stock price may bring big opportunities for patient investors.

"Stocks always go down faster than they go up, but they always go up more than they go down."

Long-term investors will probably recognize this old market truism -- maybe even from their own personal and painful experience of the "go down" part. But investors who've stuck around in the market long enough to earn the title long-term investors will know that the second half of this statement is true as well.

Over long periods of time, the stock market as a whole does tend to go up -- about 10% a year on average. And one of the best ways to make money in the market is to buy stocks that have gone down so much as to suggest Wall Street has given up on their ever turning around. When that happens, you can scoop up those stocks on the cheap, and then slowly ride them back up again.

In that vein, three stocks that have lost so much, and so fast -- 50% losses in under a year -- that it's entirely possible Wall Street has given up on them, and that now's the time to buy. Here they are for your consideration: Intelsat (INTE.Q), Inogen (INGN -1.02%), and U.S. Steel (X 4.37%).

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Intelsat

Satellite communications company Intelsat had a rough year in 2019.

Lacking generally accepted accounting principles (GAAP) profits and laden with debt ($13.8 billion net of cash, according to data from S&P Global Market Intelligence) Intelsat's value has recently come to hinge on its portfolio of wireless "spectrum," acquired in auctions from the U.S. government over a term of years. The theory was that, with the coming 5G internet revolution, and the need for spectrum to support widespread internet connectivity among cell providers, Intelsat would be able to auction off its spectrum to Internet service providers (ISPs) desperate to repurpose it for 5G usage.

In order to maximize its profits from such spectrum sales, Intelsat (and other possessors of similar spectrum) wanted to conduct private auctions. The problem was not everyone was pleased with the prospect of Intelsat profiting off the sale of spectrum originally owned by U.S. taxpayers. In November, FCC Chairman Ajit Pai nixed the idea of a private auction, and argued that Intelsat and its peers should hold a public auction instead -- and hand over much of the cash they receive to the U.S. government.

Ever since this became public knowledge, Intelsat stock has been in a nosedive. Indeed, down 72% in 52 weeks, it's one of the worst-performing stocks on the stock market right now.

But here's the thing: Politics aside, practically speaking, the U.S. government really needs Intelsat and its peers to cooperate with them on this spectrum repurposing, in order to ensure the right bands get handed over for 5G, and other bands get used with maximum efficiency to maintain satellite communications services. And that means Intelsat has a very strong hand in this game of poker it's playing with the government. With some analysts hypothesizing that a C-band spectrum sale could generate proceeds in excess of $40 billion, there may be so much money to go around as to satisfy the government, Intelsat's peers, and Intelsat itself. That makes this company worth far more than the sub-$1 billion market cap it currently fetches.

Wall Street may have forgotten that fact. You shouldn't.

Inogen

Our second stock to consider today hasn't been hit quite as hard as Intelsat -- but down 68% over the past year, it's still not looking particularly well-loved on the Street. I think that's a mistake because, despite some setbacks, Inogen remains perfectly positioned to profit from demographic trends in America. Specifically, it stands to benefit from the growing need for portable oxygen concentrator equipment for aging patients with trouble breathing -- equipment Inogen makes.

What's got Inogen stock in a funk? Well, most recently, on Jan. 13, the company disappointed investors with a "preliminary" earnings report showing only about 1% revenue growth in 2019, compared to 2018 -- and predicting weaker than expected sales growth in 2020 as well.  

This report helped to cut about 37% off Inogen's market cap from its November high through close of trading last week. But even if Inogen isn't doing as well as some investors might like, its promise of up to 10% sales growth this year still isn't too shabby -- and Inogen's valuation is starting to look really attractive, too.

Valued today at about 28 times free cash flow (or closer to 22 times FCF factoring in a cash-heavy balance sheet), Inogen stock looks reasonably priced for a company that most analysts still think will more than double its earnings over the next four years (per S&P Global data). Cash-rich, cash-generating, and with a demographic tailwind at its back, I strongly suspect Inogen is the kind of company that can bounce back from one weak earnings report -- if investors will just give it the time to do so.  

U.S. Steel

Wrapping up with probably the best-known name of the bunch, we come to U.S. Steel, a 120-year-old company that for some reason Wall Street is treating like it might vanish tomorrow.

Down 55% over the past year, Wall Street seems to be worrying that U.S. Steel's best days are behind it. They may be right about that. After all, the $630 million in profit that U.S. Steel has earned over the past 12 months is barely half the $1.1 billion it earned in 2018. But this still doesn't mean that the world is suddenly going to stop needing someone to make steel to build the cars, appliances, and infrastructure of tomorrow.

Even if U.S. Steel might not be as profitable a company in the future as it was in the past, this doesn't mean that U.S. Steel won't earn any profit. And U.S. Steel stock seems to more than price in the risk of diminished profits going forward, with its recent valuation of less than three times trailing earnings. Meanwhile, if the downturn in steel prices ever abates, and U.S. Steel's profits turn back up, this stock, valued at a lowly $1.6 billion in market cap today, could become worth much more tomorrow.

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Stocks Mentioned

United States Steel Corporation Stock Quote
United States Steel Corporation
X
$19.84 (4.37%) $0.83
Intelsat S.A. Stock Quote
Intelsat S.A.
INTE.Q
Inogen, Inc. Stock Quote
Inogen, Inc.
INGN
$26.16 (-1.02%) $0.27

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