Why Did My Stock Just Tumble?
|Star Scientific (NAS: CIGX)||*||(39.7%)|
|OmniVision Technologies (NAS: OVTI)||*****||(30.4%)|
|Harbin Electric (NAS: HRBN)||**||(11.8%)|
The market jumped 173 points Friday, or 1.2%, so stocks that went in the other direction by even larger percentages are pretty big deals.
The devil's in the details
Let me get this right: An appeals court says the patents you own are valid, and it would be impossible for a rival to improve its products without having used your patented technology, but the court rules you're not allowed to sue for infringement. Is that correct? It is if you're Star Scientific, a maker of a technology that removes virtually all of the carcinogens from tobacco, and you've been battling Reynolds American (NYS: RAI) for a decade.
Lowers courts had ruled that Star's patents, which cover a process that prevents bacterial activity in tobacco -- activity that creates the cancer-causing agents found in tobacco -- were invalid for various reasons, but all those decisions were overturned. Even the U.S. Patent Office has reviewed the patents and found them valid.
In particular, a jury trial against Reynolds a few years ago concluded with a finding that Star's patents were invalid because they were obvious and indefinite in nature. That was the case involved in the decision the appeals court handed down last week: Star's patents were indeed valid, it said, but the outcome of another trial would not change the verdict.
While Star says it will appeal, the outlook is bleak. After a decade of pursuing litigation to protect what the company defines as its "corporate crown jewels," it has nothing to show for it except a mountain of legal bills. It's been unable to monetize the technology and has resorted to selling dietary supplements that reduce the desire to smoke and smokeless tobacco products, sales of which have been weak. With competing products from Altria (NYS: MO) and Lorillard, it's not surprising. Investors have likely gotten tired of waiting.
While the broader CAPS community is nearly evenly divided over its prospects, CAPS All-Stars are decidedly set that Star will underperform the broad indexes; almost three-quarters of those rating it give it a thumbs-down. You can tell us on the Star Scientific CAPS page whether its future has gone up in smoke.
Off the market
Those who live by Apple (NAS: AAPL) can die by it, too. OmniVision Technologies is no stranger to rumors that it's lost business to the iconic phone maker, but the latest suggestion that it's lost more than half of its Apple business was too much for investors to bear.
Last year, OmniVision was said to have lost Apple's iPhone business to LG Innotek, which caused the stock to fall, but its stock quickly went on to double in value over the ensuing year. Now, rumor comes that it's again lost at least part of its image sensor business, this time to Sony, because of weak guidance. If iPhones and iPads are flying off the shelves, OmniVision should be doing better, not worse.
Yet Sony has problems with its 8-megapixel BSI-2 sensor that's delayed its production, and analysts have claimed numerous times that it's possible Sony was nosing its way in. Maybe the markets think OmniVision is on its way out as Apple's preferred provider, but it seems highly suspect and the new lower price certainly looks attractive.
CAPS member emptyjar gave OmniVision a thumbs-up earlier this month, correctly predicting that OmniVision would beat expectations:
I think the market right now is depressed in general, but I imagine OVTI will beat earnings estimates on 8/25 given AAPL's iPhone sales in the last quarter, and then when the iPhone 5 makes it's debut in September, I bet that all the Sony supplier rumors will be laid to rest and OVTI can return to an upward trend in stock price.
Add OmniVision Technologies to the Fools' new My Watchlist feature to follow its path.
Unsure of itself
What does it say about the market's trust of management when a company puts out a press release denying rumors against it -- rumors that have been out there for some time; not a new allegation -- and the stock still drops? That's what happened to Harbin Electric Friday when it issued a press release titled "Harbin Electric Refutes Unfounded Market Rumors." The stock dropped almost 12%, indicating the markets didn't believe it.
Considering the swirl of accusations around Harbin, it's somewhat surprising that more than 75% of the CAPS members rating the Chinese electric motor maker think it will outperform the broad market averages. However, they've also assigned it the lowest, one-star rating, which suggests they believe there are much better opportunities for your money.
You can let us know on the Harbin Electric CAPS page whether you think it will be able to rev itself up.
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 Apple and Altria Group. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in 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.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.
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