These Market Laggards Couldn't Rise to the Occasion
The Dow Jones Industrial Average jumped 136 points yesterday, or over 1%, as ADP reported better-than-expected payroll numbers. It's been nearly two months since the index has enjoyed such gains but not everyone could have a better day than the Dow. These three stocks had a really bad day yesterday, but don't go running over the cliff with them like a bunch of lemmings: it could just be a temporary situation. Let's first see whether they had good reason to fall as panic-fueled routs can sometimes lead to excellent buying opportunities.
Abiomed (NAS: ABMD)
Cirrus Logic (NAS: CRUS)
Barrick Gold (NYS: ABX)
From chaos, order?
Investors in heart valve pump maker Abiomed may be getting a sense of deja vu all over again. The company as been harshly scrutinized before about the claims it makes about its Impella heart pump and now it reveals yet again another investigation, this time by the U.S. Attorneys Office for the District of Columbia over the way the medical device maker marketed and labeled the pump.
Back in 2010, Abiomed was excoriated for spinning the negative outcome of a clinical study into something that sounded much more positive. Those studying the Impella guided results in the way they thought would be more beneficial to the pump but the study was ultimately halted because of the bias. Abiomed downplayed the negative results but was called out for the spin.
Last year, the Food and Drug Administration slammed Abiomed for marketing the Impella without first having received clearance, making claims in an advertisement that represented "a major modification to both the intended use and the indications for use of the device" and was ordered to cease making such claims. Now the U.S. Attorney's office is stepping in with an investigation that completely overshadows the strong earnings results the pump maker turned in.
There's a growing market for heart assist devices with Thoratec recording a 22% jump in sales for its HeartMate II, and HeartWave International gaining pre-market approval for one of its own devices. With these competitors on the rise, there seems little need to back a company like Abiomed that keeps running afoul.
Yet another Apple supplier is getting crushed, as Cirrus Logic was punished despite reporting monstrous quarterly results and even guiding to earnings well above analyst estimates in the coming fourth quarter.
The other day I noted there's a trend developing of the Apple halo getting tarnished. The coattails being ridden by TriQuint Semiconductor are becoming tattered, with fewer strips of cloth for fellow suppliers Skyworks Solutions, Broadcom, and OmniVision Technologies to ride on. Of course, Apple's stock has been falling a lot lately, too.
Cirrus counts on Apple for nearly 80% of its revenues, and its margins are eroding. It's at an obvious relationship disadvantage should Apple flex its muscles to try and squeeze even more from the chipmaker. The effects would be devastating if it lost Apple as a customer: Just ask OmniVision about the impact it had after Sony stole one of its two coveted image sensor slots.
Cirrus, though, has been one of the biggest beneficiaries of Apple's consumer electronics dominance and even after yesterday's tumble the stock is still 128% higher than where it was when it started the year. I look for it to fully recover, albeit mindful of the risks it still holds, and will maintain my outperform rating on Motley Fool CAPS where I've benefited from a 33% gain in the stock compared to just a 4% rise from the S&P 500. Let me know in the comments box below if you agree Cirrus Logic will be soaring among the clouds once again.
Gold's not glittering
It was a triple whammy that sent the world's largest gold producer Barrick Gold tumbling yesterday: It realized lower gold and copper sales volume in the third quarter, undermined by higher cost of sales for gold and lower gold prices.
Analysts had been expecting the gold miner to generate $1 per share on revenue of $3.6 billion, but instead Barrick recorded per share profits of just $0.62 on $3.4 billion in revenue. As the breakdown of its Pascua-Luma mine continues unabated, we should see the effects ripple out across the industry, particularly to those like Silver Wheaton (NYS: SLW) that have been anticipating the mine's production streams.
With sales down 13% costs were 8% higher and gold prices came in 5% lower at $1,655 per ounce. An inability to get its costs under control will hamper Barrick Gold as an investment, so tell me below if you think an investment here will simply turn up fool's gold.
Ready for a resurrection
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The article These Market Laggards Couldn't Rise to the Occasion originally appeared on Fool.com.Fool contributor Rich Duprey owns shares of Apple. The Motley Fool owns shares of Apple, Cirrus Logic, and TriQuint Semiconductor and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple. 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.
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