Why Did My Stock Just Die?

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The markets are reversing course yet again, putting together several consecutive days of rising higher, but your stock is taking a nosedive. Don't panic, though. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit:

Stock

CAPS Rating(out of 5)

Wednesday's Change

Pacific Sunwear (NAS: PSUN) **(32.3%)
United Therapeutics (NAS: UTHR) ****(18.2%)
American Eagle Outfitters (NYS: AEO) ****(8.8%)

The Dow soared 144 points yesterday, or 1.3%, so stocks that went in the other direction by even larger percentages are pretty big deals.

Wipeout!
Duuude! The back-to-school season is off to a rocky start for surf-and-skate shop Pacific Sunwear. Forecasting losses of as much as $0.18 a share in the third quarter, the retailer is getting crushed for hugely missing the $0.06 per share loss analysts had anticipated.

While investors suffered scraped knees betting on a turnaround in a store that hasn't seen the sunshine in years, consumers at least should benefit from the competitive environment existing among mall-based rivals like Aeropostale (NYS: ARO) and Abercrombie & Fitch (NYS: ANF) .

Despite running into a "situation," Abercrombie still surpassed expectations with its earnings report, though gross margin dropped pretty significantly from year-ago levels. Aeropostale disappointed again, and analysts say the malls are likely to stay in a promotional stance. That's an environment that CAPS member gopyerk believes presents an even cloudier future for PacSun: "Some would say this can't go much further down, I would say not so fast. Out of all the teen retailers this one really stinks..."

American Eagle Outfitters isn't flying so high either. Even though net profits doubled in the quarter, last year's results were pulled lower by discontinued operations. Moreover, it was planning on offering consumers greater discounts at the same time it was paying more for cotton.

Higher commodity costs, particularly cotton, have been a bugaboo for a number of retailers. Jean makers True Religion (NAS: TRLG) and Joe's Jeans have been particularly affected, as if a boll weevil had eaten through their financial statements. Gap and Wet Sealfared no better.

Despite 78% of the 374 CAPS members rating PacSun to outperform the broad market averages, the low two-star rating they've assigned it suggests they think there are better teen-dream shops for your money. American Eagle has been one of them, as 94% of those weighing in think it can still beat the Street.

You can tell us on the Pacific Sunwear CAPS page whether it will ever be able to "hang 10" again, and you can see if the Eagle ever soars again by adding it to your watchlist.

Off the market
Drug developers and their investors live and die by their clinical trials, and for United Therapeutics, the results of its lung disease treatment treprostinil were a major disappointment. Considering earlier trials had showed promise and the drug is already approved as an injectable, inhalable, and intravenously administered therapy, it was believed an oral version of the drug would be just as successful. Not so. The phase 3 study failed to show patients with pulmonary arterial hypertension could walk farther.

Management might think the prior study results warrant still submitting the drug to the FDA for approval, but investors apparently don't agree and largely abandoned the stock. That's not surprising, since oral treprostinil also had a greater percentage of patients dropping out of the trial or discontinuing the drug's use due to adverse events than with a placebo.

United Therapeutics has been widely targeting pulmonary arterial hypertension and recently reached an exclusive out-license agreement with Pluristem Therapeutics (NAS: PSTI) , which is looking to develop and commercialize cell-based products for treating PAH.

Analysts have been wildly bullish on United's ability to beat the market averages, unanimously expecting oral treprostinil to fare as well as the other delivery methods. Add United Therapeutics to the Fools' new My Watchlist feature, and see if the new developments change their mind.

Ready for a resurrection
Just because your stock has taken a beating doesn't mean it's going to roll over and die. Markets are known for overreacting. A closer look on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.

At the time this article was published The Motley Fool owns shares of Aeropostale. 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.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in the article. You can see his holdings here.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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