Is it Time to Buy These 3 Fallen Stocks?

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After being market laggards, these three stocks saw gains on Tuesday behind various catalysts – but which, if any, are a buy? In this article, I am looking at these stocks to determine the answer to this question.

Low Expectations Create Gains

Neither Apple nor Facebook have continued to grow with the same level of intensity that many analysts had projected last year. As a result, the cloud company Fusion-io (NYSE: FIO) has seen significant weakness over the last year. Yet, UBS believes that despite these growth issues, Fusion-io can still grow 20% in 2013 and 30% in 2014.

UBS has a “Buy” rating on the stock, and the notes in the call caused shares to trade higher by more than 8%. What’s strange is that the consensus is for revenue growth of 21.4% and 30.5% in 2013 and 2014, respectively. Therefore, the UBS call was a bit below the consensus; although Wall Street didn’t seem to notice.

Apparently, Fusion-io has reached a level where expectations below the consensus are warmly welcomed. This is a stock that has fallen 40% in 2013, but a company that is growing rapidly. While there are a lot of questions surrounding this company, there are a lot of fundamental improvements and buyout rumors as well. Thus, I think it is an interesting investment option.

Is a Big Deal in the Works?

Over a five-year period, shares of Mellanox Technologies (NASDAQ: MLNX) have traded higher by more than 220%. Yet, the stock has lost 60% of its valuation since September 2012, as demand and growth have suddenly come to a halt.

However, on Tuesday the stock rallied 11% behind a bullish note from Clal Finance. According to Clal, major deals might be coming. The firm cites the company’s Q1 conference call where Mellanox said that it expects major deals from Internet/cloud service providers.

Clal makes a good point by referencing Mellanox’s InfiniBand’s advantages, including high performance, low latency, and quality-of-service. As a result, Clal believes the InfiniBand will be used in Microsoft’s new $677 million Iowa data center, and makes a good case due to the success of InfiniBand’s hardware within Microsoft servers. However, at 24 times earnings and with no current growth this is a speculative call, and I am not yet willing to get excited until I see such deals materialize.

A Partnership That’s Coming Together

InterOil Corporation (NYSE: IOC) did not receive an upgrade on Tuesday, but it did trade higher by 4.4% behind a corporate update on a proposed transaction with Exxon Mobil in Papua New Guinea. This transaction involves natural gas assets, which should lead to rapid expansion due to the resources of Exxon Mobil.

For those of you unfamiliar with this energy play, InterOil has assets worth billions, but has been searching the industry for a strategic partner since 2011. The “billions” of potential sales was in liquefied natural gas (LNG), but InterOil is simply supplying gas to Exxon for its projects.

Back in February, InterOil announced that it has received “several bids” for LNG, but the Exxon deal was less than what many expected. As a result, InterOil has lost almost 20% of its value during the last month.

However, this deal presents the opportunity for further expansion, additional partnerships, and a possible acquisition. Thus, with InterOil providing an update with a dual development path to expand its production, I think the value presented in the stock is attractive for retail investors, seeing as how the market overreacted negatively to the Exxon deal.

Final Thoughts

The developments surrounding both InterOil and Mellanox are highly speculative, as InterOil’s partnership details are still ongoing and Mellanox has given no indication of a new customer. Fusion-io does have 20% growth and is doing so despite weakness from both Facebook and Apple. As a result, I tend to believe that it presents the greatest level of upside from this point forward, or at least in the immediate future.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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