Why Did My Stock Just Die?
CAPS Rating(out of 5)
|G-III Apparel Group (NAS: GIII)|
|Titan Machinery (NAS: TITN)|
|NovaGold Resources (NYS: NG)|
With the Dow Jones Industrial Average (INDEX: ^DJI) falling 119 points yesterday, or 1%, stocks that went down even more are pretty big deals.
Has luxury lost its luster? Until recently, top-end retailers have been a good bet for staying above the fray, but after the market's frenetic trading over the past month, most luxury goods companies are trading lower. Saks is down 26% from the highs hit in July, Coach (NYS: COH) is off 21%, and Tiffany sits 17% below its recent top.
Yet it's not just volatility that sent shares lower, but weakening performance. Coach saw margins take a hit from higher labor and commodities costs, factors that contributed to Saks' quarterly loss.
So when G-III Apparel Group reported earnings the other night that showed profits guidance lowered for the full year, it probably shouldn't have comes as much of a surprise. G-III makes goods for top line brands like Calvin Klein, Sean John, and Kenneth Cole.
The CAPS community remains very supportive, and while not as gung ho as Wall Street, which unanimously thinks it will beat the market indexes, 91% of the members rating the apparel company think it can do so. Add G-III Apparel to the Fools' My Watchlist feature to keep track of whether its as threadbare as it seems.
The devil's in the details
In speaking of the future second president of the United States, Benjamin Franklin once praised John Adams for being wise and honest, but also noted "sometimes and in some things, (he is) absolutely out of his senses."
Such might be the best description for how the market reacted yesterday to Titan Machinery's second-quarter earnings report that beat analyst expectations on the top and bottom lines, as well as offering raised guidance for the full year. Margins also improved as agricultural sales of farm equipment jumped 47% from the year-ago period. So why did the market deliver a beat down on the stock?
A common but accurate critique of Titan is that it poorly manages its debt profile with a debt-equity ratio of 1.78 and a quick ratio of around 0.3. Investors typically want to see the DE ratio at 1.0 or less and the quick ratio north of there to ensure there's enough cash on hand to pay the bills. Tractor Supply (NAS: TSCO) also sports some unsavory looking ratios, but manages to come out ahead (its shares were up 1.5% yesterday).
But as noted, this has been a recurring refrain for Titan, and the current quarter's balance sheet doesn't provide anything surprising in that regard. So I think it's safe to assume that Mr. Market is "absolutely out of his senses" on the very strong earnings report, and investors might want to consider this a buying opportunity if the rest of their due diligence checks out.
Focused in the Mid-West, Titan has most recently bought up several smaller versions of itself like St. Joeseph's. At the same time, the company has been adding to its bottomline through flood clean--up support, an area neglected by the major companies it otherwise mirrors.
Let us know on the Titan Machinery CAPS page if you think it can escape from the insane asylum.
It's deja vu all over again as NovaGold Resources seems to have broken its abacus again. Back in 2007, it suspended its Galore Creek project in British Columbia that it jointly owns with Teck Resources (NYS: TCK) after it overestimated how much gold was in the project and underestimated how much it was going to cost. It now says it's going to cost some $5.2 billion, nearly 400% more than it first estimated.
The same scenario played out again when it admitted its Donlin Creek deposit -- jointly owned with Barrick Gold (NYS: ABX) -- was also going to cost a lot more to develop than it originally estimated. The initial estimate pegged the cost at $4.5 billion in 2009; now the price has float higher to $7 billion. The markets are apparently heeding the mantra, "fool me once, shame on you; fool me twice, shame on me."
It's not all NovaGold's fault since prices are rising everywhere. Kinross Gold ended up selling to Barrick its stake in its Cerro Casale project in Chile after cost estimates soared. And Barrick found its Pascua Lama project also suffering from cost inflation.
With 90% of the CAPS members rating NovaGold to outperform the broad market averages, the best course of action may be for it to sell the promise of the projects and the high price of gold to someone else. NovaGold points out gold has also risen in value over the years, but that's not helping it any if it can't develop the mine in the first place.
Let us know in the comments section below or on the NovaGold Resources CAPS page whether you think this gold mine can still strike it rich.
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 Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Coach. Motley Fool newsletter services have recommended buying shares of Coach. 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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