These Stocks Need a Bailout of Their Own
The tremor sent through the global financial system was almost palpable. The prospects of seizing the bank accounts of individual Cypriot customers in exchange for a bailout could unleash a wave of bank runs around the world before world governments in equally shaky financial zones could seize them, too. Of course, everyone says that won't happen, but the slippery slope the EU put itself on had the Dow Jones Industrial Average frozen in place, rising a barely perceptible three points yesterday.
The three stocks below faced a run of a different sort as investors turned tail, but don't go running over the cliff with them like a bunch of lemmings just yet: This 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.
Harvest Natural Resources
Thank you, sir, may I have another?!
I'm no accountant, so the arcana of accounting rules is all Greek to me, and apparently also to the bookkeepers at oil and gas producer Harvest Natural Resources, which said it may have to restate its financials going back several years because of a whole slew of accounting errors it found.
According to its SEC filing, Harvest Natural said not only were there errors related to incorrect capitalization of some lease maintenance costs as well as for internal SG&A costs, but the company's cash-flow presentation also had an error and some of its long-lived assets have been impaired. Oops. Moreover, it just might also be able to identify "additional material weaknesses." You think?
On top of everything else, the Venezuelan oil and gas operator said it was going to report a loss of $0.26 per share for all of 2012, a tad worse than the $0.87 per share profit that analysts had been expecting. Oh, and its auditor issued a "going concern" notice, which suggests it has substantial doubt about the driller surviving.
Everything is spinning out of control at Harvest ever since India's government rejected its planned $725 million sale of Venezuelan assets to the state-owned Petrodelta. Considering the surprise nature of the disclosures, investors were right to sell en masse. As they say, where there's one cockroach there's usually more, and Harvest Natural Resources sounds like it's in need of an exterminator.
In the spotlight
Dietary supplement maker Star Scientific is also under the magnifying glass following the disclosure that the U.S. Attorney's Office served it with subpoenas in January and February regarding private stock placements that the company made since 2006, along with various related party transactions.
Star didn't disclose any more information than that in the annual report it filed yesterday -- the last day possible to file it -- but the muckraking analysts at Street Sweeper had noted a couple of years ago the uncanny timing of certain private placements that netted insiders including CEO Jonnie Williams millions of dollars in profits. Street Sweeper, which often takes positions in stocks betting they'll fall prior to releasing their report, noted that just a week before a U.S. Patent Office ruling favorable to Star, insiders purchased millions of dollars worth of stock that was trading below $2 a share at the time and soared close to $4 a stub after the ruling.
It's unclear whether that is one of the transactions that the U.S. Attorney's Office is investigating, but it's a good reason why investors shouldn't dismiss out of hand a company's short analysis even if you disagree with it. While Street Sweeper has had a hit-or-miss record with its investigations, short-sellers are usually the only ones willing to look under the rocks and behind the rosy stories companies peddle.
But accusations aren't convictions, and Star hasn't been found guilty of anything at this point, though the drop in its stock yesterday suggests investors aren't willing to wait around to find out.
After Electronic Arts ousted its CEO and further cut its guidance, causing its stock to fall more than 8%, it's probably not too surprising to see that other gaming names showed weakness, too. Glu Mobile was one of the biggest losers yesterday with its 9% drop, but Zynga fell back more than 1%, and Activision Blizzard lost 2.5%.
Glu has been riding a wave of support following the launch of its first real-money gambling product. The stock was up 58% over the past two weeks before yesterday's pullback, so investors who buy into the bullish theory of it being an online gambling house shouldn't worry. Others like me who are more skeptical of the long-term benefits of the maneuver just might think this is only the beginning.
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The article These Stocks Need a Bailout of Their Own originally appeared on Fool.com.Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and Harvest Natural Resources. 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.