Why Did These 2 Stocks Roll Over?

The Dow Jones Industrial Average recorded its second down week in a row as the prospects that the Federal Reserve would continue to prop up the market faded. But with the following companies going down even more, first let's see whether they had good reason to drop. Sometimes, panic-fueled declines can make excellent buying opportunities.

The markets tumbled 137 points on Friday, or just over 1%, and moving further away from the 13,000 level. So stocks that went down by larger percentages are pretty big deals. These two stocks fell hard; let's see whether there's anything to redeem them.


CAPS Rating (out of 5)

Friday's Change

Talbots (NYS: TLB)



Infosys (NAS: INFY)



That's going to leave a mark
Remind me again why, other than corporate arrogance, women's-fashion retailer Talbots didn't accept the hefty buyout premium a private-equity firm offered it last December? Although it said the $212 million offer from Sycamore Partners, its largest shareholder, was inadequate and that it would pursue strategic alternatives on its own, there doesn't seem to be a rush of buyers stampeding to its red door. And if fourth-quarter results are any indication -- along with dimming prospects for the first -- it won't get any red-carpet treatment, either.

Fourth-quarter losses significantly widened over the year-ago period, hitting $55 million as sales fell by more than 1%. While the adjusted results were better than analyst expectations, Talbot's warning that first-quarter sales would be almost 10% below last year's effort sent investors scurrying. Its stock had been trading in the area of $3 a share ever since Sycamore's offer, but the quarterly results were enough to shake out the holdouts looking for a better offer.

It was a rough quarter all around, to be sure, as even retailers with better operations such as Ann saw profits skid as a result of a heavy promotional environment and New York & Co. (NYS: NWY) witnessed a 6.3% drop in comps. Thus for a retailer experiencing as much turmoil as Talbots has, it's hard to see why someone would want to pay up for the privilege of owning it.

I noted at the time of Sycamore's offer it had a bevy of problems on its plate. Inventory issues, missing earnings expectations, and a CEO retiring with a hefty severance package despite destroying shareholder value -- ranking her up there as one of the worst CEOs of the year -- were just some of the problems. It's why I rated the retailer to underperform on CAPS.

It's also the likely reason nearly 60% of the investment community members weighing in on Talbots also rated it to underperform. And All-Star members had an even grayer outlook. Only Wall Street was confident that it could still pull a rabbit out of the bag, but last quarter -- and the next one -- look like a turkey instead.

Add Talbots to your Watchlist to see whether anyone else is willing to pay up for a down on its luck retailer.

In or out
The future's not shaping up particularly bright for Indian outsourcing specialist Infosys Technologies, as its seriously diminished guidance sent shares tumbling.

The global economy has become much more unpredictable, and with worldwide growth in doubt -- even China is expected to have a fairly hard landing -- the immediate future for IT service providers like Infosys and Wipro are doubtful. So despite still forecasting 8% to 10% growth in revenues this year, when analysts are expecting 10% to 15% growth it's recognized that the industry stalwart is gripped by ennui. Yet it points to rough waters ahead here in the U.S., as India's IT-services leaders -- Infosys, Tata Consultancy, and Wipro -- generated three-quarters of their revenues from the States.

IBM and Accenture are stepping up competition, so that plays a role as well. Infosys reported that customers have been cutting back on orders, suggesting that they're reining in their spending ahead of harder times ahead.

Yet unlike Talbots, 97% of the CAPS members rating Infosys believe it will see better times ahead and go on to outperform the market indexes. I'm not so sure, as not only are customers cutting back, but they're also going to be looking for cheaper alternatives as labor costs rise. Even "insourcing" is gaining popularity again, and this downturn might be more protracted than it appears.

I'm rating Infosys on CAPS to underperform further, but tell me in the comments section below or on the Infosys Technologies CAPS page whether you think this is just a speed bump for the outsourcing specialist. Then add Infosys to your Watchlist to see which scenario plays out.

Ready for a resurrection
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At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of IBM.Motley Fool newsletter serviceshave recommended buying shares of Accenture. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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