Looking back on the first month of 2020, January was rife with uncertainty in terms of stocks to buy. The unbreakable bull market finally met its end after surviving impeachment proceedings, trade wars and rising tension between the U.S. and Iran. However, a global health crisis was the straw that finally broke the camel’s back — and U.S. indices finally started to make their way lower.
Traders should be welcoming the decline, though, as the market’s more reasonable valuations offer a variety of stocks to buy at discounted prices.
Some stocks that saw losses of 30% or higher over the past month have started to look like attractive bets. That said, here’s a look at three of the market’s biggest losers that could be stocks to buy as we move forward in 2020.
Stocks to Buy: Alcoa (AA)
January Loss: 35%
Earlier in January, Alcoa (NYSE:AA) released fourth-quarter results that understandably spooked investors. The American industrial firm reported losses of 31 cents per share after reporting losses for each of the four quarters of 2019. All told, the firm lost over $6 per share for the full year.
A big part of those losses came from the firm’s massive restructuring effort. CEO Roy Harvey has been divesting assets that have been weighing Alcoa down and implementing a new operating model — all of which has required time and money.
On top of that, the firm has been struggling with stagnant aluminum prices and a decline in alumina prices. According to the firm’s earnings release, the company expects supply to outweigh demand again this year.
However, it’s not all doom and gloom for Alcoa. A global economic recovery should help spur on demand, and U.S. sanctions on aluminum imports could be a valuable tailwind.
Additionally, analysts at Credit Suisse say the second half of the year could be better than expected for Alcoa; Especially as the firm’s asset sales will likely impact the balance sheet at that time. For that reason, Credit Suisse upgraded their rating of the stock from “neutral” to “outperform” with a $27 price target. That represents an upside of more than 90% from where the stock is trading today.
That said, these catalysts would make Alcoa stock a great addition to your portfolio from the stocks to buy list.
January Loss: 32%
Uncertainty was the reason for Tenneco’s (NYSE:TEN) decline in January, as the firm is in the midst of splitting its business into two separate entities. Under the Tenneco umbrella, management is planning to house an emission control business and engine parts business. The end goal is to create a one-stop shop where customers can improve engine efficiency and meet clean-air regulations.
The rest of Tenneco’s business will spin off into DRiV. DRiV will house a range of auto parts, including brake and suspension components as well as a portfolio of aftermarket brands.
Analysts have applauded Tenneco’s decision to split the business and make use of the synergies between different segments. However, the firm announced in January that the spinoff of DRiV could be delayed.
The news that DRiV may not be spun off by mid-2020 took investors by surprise and ultimately sent TEN stock into a tailspin. However, Morgan Stanley’s Adam Jonas noted that it may not be as detrimental as the market implied. “We see risk to the spin of DRiV, if management wants to maintain certain leverage targets for DRiV and New Tenneco, but we believe the desire to spin is there, and management has enough levers to get the spin through the finish line,” he said.
With that in mind, this could be a time for potential investors to buy the dip. After all, this resulting spin off could make Tenneco another one of the great stocks to buy for 2020.
Laredo Petroleum (LPI)
January Loss: 40%
Laredo Petroleum (NYSE:LPI) is an oil and gas company whose business has been struggling over the past two years following a failed experiment with higher density drilling. To begin 2019, Laredo was also working with operations concentrated outside of the most lucrative parts of the Midland Basin, which weighed on margins and profitability. However, at the end of 2019 the firm bought up land in Howard County. That said, the company expects this acquisition to deliver higher margins in the short term.
Laredo’s historic location has driven management to lower production costs and create an efficient organization; a boon in the oil and gas industry.
According to Morningstar, pessimism about the sector as a whole has made LPI undervalued. Analysts at Morningstar say that negativity regarding the natural gas market is overdone.
“The decline has gone too far, however. At current prices, only the highly productive ‘sweet spots’ of each shale basin are profitable, and producers have responded with significant spending cuts. Consequently, a supply gap is emerging. We think the market is underestimating the build out and utilization of U.S. liquefied natural gas export facilities, which are a sink for U.S. natural gas, and domestic demand growth will also surprise on the upside because of rising consumption in the electric power sector.”
With that in mind, Morningstar gave Laredo a $5 Fair Value Estimate. That said, this figure would be an increase of nearly 200% from its current price of around $1.70.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.