You saw the headlines. You know your stock made a big move one way or the other over the past week, but what does that portend for its future? If there's not a fundamental basis for a stock's run higher, or its trip to the cellar was fueled by transient, panic-driven selling, those gains and losses might not hold -- and therein lies the potential for investors to profit!
Here we look at one stock that stumbled and one that soared. By pairing the latest news with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, we might be able to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
72 inches down
A few years ago I penned an article looking at four stocks I thought were likely seeing their last Christmases. For a variety of reasons I figured Blockbuster, Borders Group, Sears Holding, and RadioShack (NYSE: RSH) were all doomed to receive a lump of coal in their stocks.
Although they held on slightly longer than I gave them credit for, the video shop and the bookstore eventually gave up the ghost as Internet competition doomed the bricks-and-mortar business model. I still don't hold out much hope for Sears or RadioShack, though they've got some breath in their lungs, but of the two I see the latter heading for a dirt nap first. When it happens, I'm not sure, but I have to agree with the Fool's analysts who see it heading to zero.
Both The Shack and Best Buy (NYSE: BBY) are racing to the bottom as Web retailers, most notably Amazon.com, pick clean their customer base. They both made a conscious effort to become the go-to space for mobile phones, but as the Fool's Jason Moser notes, RadioShack is losing even to its sickly rival because it's opting for a low-margin strategy that apparently can't support its operations.
RadioShack's stock tumbled more than 20% over the past week after the company ousted its CEO. That's probably the most positive turn the company has taken since management had little credibility left after promising to preserve the dividend only to end up suspending it several months later. Unfortunately that's not enough to preserve the company and I've rated it to underperform the market indexes on CAPS, but really believe it will be pushing up daisies sooner rather than later.
I've been castigated before about my bearish stance, particularly on Blockbuster and Sears, but you can tell me in the comments section below whether you agree investors will tune out RadioShack for good.
When the system is on the fritz
Maybe it's a good time to get out of the electronic medical records business as a stand-alone company. Allscripts Healthcare Solutions (Nasdaq: MDRX) jumped 20% last week after it was reported that the EMR provider hired Citibank to explore strategic alternatives, including a leveraged buyout to private equity firms like Blackstone.
E-records were supposed to smooth the creation of a system that was more efficient and less prone to error. Under President Obama's stimulus spending plan, $30 billion was committed to transforming the system by paying incentives to doctors and hospitals that made the switch. Hospitals jumped on board quickly, and nearly a third of them qualified for the incentive payments in 2011, with 61% saying they intended to qualify. Only 5% of the doctors qualified, but 33% registered to qualify.
Although it was supposed to make the sharing of information between providers seamless, the Bipartisan Policy Center found, unsurprisingly, the law of unintended consequences came into play as government involvement grew. Since both hospitals and doctors get paid if they order the same test, there's little incentive for one to want to know if the other already gave it since that would reduce revenue to them. The New York Times says e-records are actually raising the costs of Medicare.
Allscripts is already a company in turmoil, and earlier this year it dumped its board chairman and had three other directors resign. One of its major shareholders called for the CEO to be fired. With Quality Systems (Nasdaq: QSII) and Cerner (Nasdaq: CERN) all looking to grab a piece of the electronic-medical-records pie, being the odd man out and not able to focus on the task at hand because of internal strife would only lead to greater problems.
Although there's no guarantee Allscripts follows through, the executive suite revolving door suggests it's pretty much a fait accompli, with only the buyer needing to be finalized. Let me know in the comments box below if you think the sale of Allscripts Healthcare Solutions is all but a done deal.
Stop, look, listen
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