The Market Just Crushed My Stock!
The markets managed to stage a small rally yesterday after some positive economic data was released, but even though your stock took a nosedive, don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit:
CAPS Rating(out of 5)
|Green Mountain Coffee Roasters (NAS: GMCR)||*||(39.0%)|
|Silver Standard Resources (NAS: SSRI)||****||(21.0%)|
|ATP Oil & Gas (NAS: ATPG)||****||(14.2%)|
With the market rising 113 points yesterday, or 1%, stocks that went down by even larger percentages are pretty big deals.
That's going to leave a mark
The earnings report from Green Mountain Coffee Roasters left investors feeling like they just took a swig of cold, day-old joe. It's not that the coffee maker didn't have a seemingly decent quarter -- profits more than doubled and revenues were 91% higher, even if they fell short of expectations -- it's that the dark rumors that have dogged the company in recent weeks seem to be bearing fruit.
Inventory at Green Mountain soared by $410 million, year over year, two-thirds of which is comprised of finished K-Cup product, which grew at a faster rate than revenues. Fools don't mind seeing a buildup in raw materials (which also grew in the quarter by nearly 300%), but when finished goods pile up it means it's not pushing product out the door. One of the allegations that's been leveled at the coffee grinder is it has been channel stuffing in previous quarters. Eventually that catches up to you and you have an explosion in finished goods inventory. Investors are obviously concerned that's what's occurring here.
Despite agreements with rivals Dunkin Brands Group (NAS: DNKN) , the parent of Dunkin' Donuts, and Starbucks (NAS: SBUX) to produce K-Cups for their own coffees, Green Mountain patents are on a death watch as they expire next year. At that point, expect a flood of branded and generic K-Cups to flood the market. Coffee drinkers may be loyal to their brands, but the margins Green Mountain can make on its own single-serve pack will shrivel up. The bear case outlined by hedge fund operator David Einhorn seems to be gaining traction.
Completely overdone sell off. Like shooting fish in a barrel. At $42, P/E is at 26X or 16X 2012 estimates. 60% growth from $1.60 in 2011 to $2.60 in 2012 is still in tact. Lets apply a conservative P/E of 35X current earnings or $56 bucks a share or 33% above current prices. Thats a PEG of .58 and builds in plenty of cushion for additional earnings misses.
Put Green Mountain Coffee Roasters on your watchlist and see if it can overcome the wall of worry.
A tarnished outcome
Silver miner Silver Standard Resources lost its luster after reporting a host of problems with equipment, and resource estimates mean it will produce less from its Pirquitas mine in Argentina but do so at higher costs.
Silver Standard suffered production shutdowns in July and September due to faulty equipment, but then after updating guidance toward the end of September suffered further shutdowns in October and November, meaning that if it's able to hit the low end of the guidance offered back then (7.3 million ounces of silver), it will be a heckuva accomplishment.
As a result, the silver miner's total cash costs jumped 21% year over year to $20.60 an ounce. Compare that to a miner like First Majestic Silver (NYS: AG) with total cash costs of $8.39 per ounce or low-cost industry leader Hecla Mining (NYS: HL) at just $2.98.
Management at Silver Standard says it has those issues behind it now so it can begin working again to where it should be, which is probably why 96% of the 270 CAPS All-Stars rating the miner think it will outperform the market. Let us know in the comments section below or on the Silver Standard Resources CAPS page if you think it will regain its sheen, and add it to your watchlist to be notified of all the latest developments.
It's been a rough few days for ATP Oil & Gas, which has seen shares plummet 31% in the last two trading days. Oil production is falling, frightening bondholders who have sent yields soaring. With $2 billion in debt and just $172 million in cash, it puts the oil and gas producer in a precarious position. An analyst says the lower production levels means it might not be able to make interest payments due in May on $1.5 billion of that debt. Moody's has already said it doesn't think ATP's assets or cash flows are sufficient to cover its debt load.
It's turning out ATP's oil field in the Gulf of Mexico might not be the rich asset it was once thought to be, leading to fears it might not be able to carry out its projects in the North Sea. And when management refused to divulge its liquidity position during the conference call, doubts about its ability to continue on mounted.
Almost 1,400 CAPS members have rated the oil and gas specialist, and 97% were thinking it could beat the Street going forward. After its performance recently and the outlook for the immediate future, we may see a number of investors revisiting their opinions. Add it to your watchlist to see which way it goes.
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. With CAPS, you can decide for yourself whether your stock 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 Starbucks. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Starbucks. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. 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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