These 3 Stocks Have Bigger Problems Than Europe's Woes
We're only one month into the new year and already European financial woes are creeping back into the headlines, shaking European bourses and revealing the true fragile condition of the continent's situation. It also took the wind out of the Dow Jones Industrial Average, which fell 130 points or almost 1% as the drama unfolded and indicated our own economy is standing on wobbly knees.
Adding to the distress, sequestration cuts are looming again. In true Washington fashion, the deal brokered to avoid the fiscal cliff last month didn't resolve the problem, but merely punted it down the road for a time. March 1 is the new deadline for staving off across-the-board cuts and most observers doubt the politicians have the political will to do what's right. February may indeed be the time to take some of the gains made over the past year and some stocks seem to have begun right out of the gate.
With three-quarters of all the stocks listed on New York Stock Exchange declining yesterday, the three below were among the notable companies leading the way down.
Now don't go running over the cliff like a lemming: it could just be a temporary situation. Let's first see whether they had good reason to fall as panic-fueled routs can sometimes lead to excellent buying opportunities.
In the line of fire
News of the Justice Dept.'s decision to sue Standard & Poor's for its role in the mortgage meltdown shook rival ratings house Moody's as well. If they're going after one agency, how long before they come after the others? S&P's parent, McGraw-Hill , tumbled almost 14% on the news.
S&P, Moody's, and Fitch Ratings are the three of the biggest nationally recognized statistical rating organizations, a designation that gives them special roles in the financial markets. They were widely criticized in the aftermath of the financial crisis for having given high grades to what turned out to be virtually worthless junk.
Considering the many companies that arguably played a larger role in the financial crisis, it's curious Justice is going after S&P. Investors undoubtedly feel that the ratings agency is only the first domino to fall, and that Moody's and Fitch may be next in line. Until the dust settles though, Moody's investors would wisely do well to remain on the sidelines
Dwindling chance of survival
Solid-state drive maker OCZ Technology confirmed the worst suspicions investors held about the state of its finances, predicting that revenue in both the second and third fiscal quarters will come in woefully short of expectations, somewhere between $65 million and $85 million.
In September, OCZ had forecast a revenue range between $110 million and $120 million, which itself was down from its original guidance of $130 million to $140 million, but then it updated that outlook again a month later to say, on second thought, make that "materially lower" than the guidance we just gave you. Even so, the company's hedged its bets yet again by saying these guesses "are subject to further review."
The bid to gain share against Seagate Technology and Western Digital went awry, and it lost control of customer rebate programs. That led to massive losses and caused its founder and CEO to abruptly resign. Investors keep pinning their hopes on Seagate stepping in to offer a buyout, and that may ultimately be OCZ's only salvation.
Almost two month's ago, China's YouTube was the toast of the town, feted by analysts who saw Youku's $1.1 billion acquisition of Tudou finally paying off. They raised price targets and had rosy predictions of the synergies it would realize. I was a bit more circumspect and doubted it would play out as the analysts imagined because while the merger gave it a good lead over its main rival Sohu.com , such large acquisitions rarely work out as planned. I felt Youku would eventually give back its gains.
Its stock did continue to climb in the weeks afterward, but it seems the turning point has been reached. Analysts now say the profitability they hoped for this year might not come now until 2014 since revenue is growing only 20% while expenses are soaring 50%. Sohu is also facing a diminished future, forecasting earnings of $0.55 for the first quarter when Wall Street was looking for $0.77.
A better buy for 2013
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The article These 3 Stocks Have Bigger Problems Than Europe's Woes originally appeared on Fool.com.Fool contributor Rich Duprey owns shares of Seagate Technology. The Motley Fool recommends Goldman Sachs, Moody's, and Sohu.com. The Motley Fool owns shares of McGraw-Hill and Western Digital. 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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