Why Did My Stock Just Die?
Your stock just took a nosedive -- but don't panic. 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.
CAPS Rating(out of 5)
|TeleNav (NAS: TNAV)|
|STEC (NAS: STEC)|
|Digital River (NAS: DRIV)|
Do we get an up day today with a debt deal supposedly worked out? The markets have recorded six straight down days, dropping almost 582 points in that time frame, or 4.5%. Friday alone was down almost 100 points. So stocks that went down by even larger percentages are pretty big deals.
The devil's in the details
Mobile communications and computing are one of the few driving forces of growth in this economy. Aside from the telecoms themselves and the handset makers, everyone from consumer-electronics chain Best Buy to office-supply giant Staples is latching onto the wave as a means of fending off stagnation.
Voice-guided navigation-systems provider TeleNav has benefited from this proliferation through contracts with Sprint Nextel (NYS: S) and AT&T, which account for most of its revenues, but is expecting partnerships with automakers such as Ford (NYS: F) to become an increasingly important source of sales, exceeding 10% of revenues. But marketing and sales expenses soared in the fourth quarter, well ahead of the 10% increase in revenues it enjoyed, and guidance for the current quarter and full year came in below analyst expectations.
Since mobile computing and telecommuncations show no signs of weakening, it seems the massive selloff in TeleNav's stock was overwrought. Shares had risen some 250% over the past year, so there was some froth built into the stock, and management notes that as Ford becomes a bigger part of its results (and the contributions from Sprint and telecoms decline), margins will soften a bit, as the automotive segment is a lower-margin business. Still, it doesn't seem worth the loss of $300 million in market value.
TeleNav is flying under the radar of most of Main Street and Wall Street, but the All-Stars who have weighed in see it as being able to navigate its way to beating the broad indexes. Let us know on the TeleNav CAPS page or in the comments section below whether you think it can find its way to growth again.
Solid as a bowl of soup
It was also earnings guidance that sent solid-state drive maker STEC spinning out of control on Friday, as it said its customers want cheaper drives than what its state-of-the-art ZeusIOPS drive goes for. In a different time, OEMs would probably have flocked to STEC's drives, but the industry is facing slack demand and apparently wants to spur growth by offering the lowest prices possible. As a result, STEC says third-quarter results will plunge significantly below the second quarter's efforts.
With almost 90% of its revenues coming from just 10 customers -- and EMC (NYS: EMC) still comprising the greatest portion at almost 38% -- there's always been the risk that STEC would be adversely affected if just one partner changed its purchasing, let alone several. That was made clear last year, when inventory issues at EMC wreaked havoc on STEC's results.
Insiders had been buying STEC shares, which is often a bullish indicator, and was one of the reasons CAPS All-Star kkconway thought the drive maker would surprise: "Cindy Johnson says insiders are buying in droves, Seth Jayson points out they have 'positive inventory divergence,' i.e., they are ramping up for huge orders coming in, and Barron's says the smart money on the street is grabbing up shares. I am in!"
Is there a way to positively spin this result? Let us know your views on the STEC CAPS page and follow along by adding the stock to Fool's free portfolio tracker.
A lagging indicator
It was 3-for-3 on the earnings front as e-commerce provider Digital River went over the falls in a barrel, despite turning in a solid effort.
Maybe results would have been different had Washington gotten its act together sooner and not put the country on a collision course with default, but the level of uncertainty that's evident in the business community had Digital River's customers hesitant about spending money. The company sets up and operates e-commerce platforms for companies including Microsoft, for which it builds, hosts, and manages an e-commerce store for the sale of Microsoft and third-party software as well as consumer-electronics products.
Like mobile computing, e-commerce isn't going away, and Digital River is the leading provider of such support services. The economy isn't great, regardless of whether there's a debt deal done, but e-commerce remains a growth industry.
The loss of Symantec (NAS: SYMC) as a customer hurt, but 93% of CAPS members rating Digital River think it can still beat the market. You can follow along on its development by adding it to your watchlist and sailing over to the Digital River CAPS page and letting us know whether you agree.
Ready for a resurrection
Just because your stock has taken a beating, that 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 Best Buy, EMC, Ford, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Digital River, Ford, Staples, Best Buy, Microsoft, and AT&T and creating a covered collar position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.Fool contributor Rich Dupreyowns shares of Best Buy but has no financial position in any of the other stocks mentioned in the article. You can see hisholdings. The Motley Fool has adisclosure policy.
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