The Market Just Crushed My Stock!
The markets cobbled together another strong rally yesterday after Italy's vote for austerity, 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)
|Bio-Reference Labs (NAS: BRLI)||****||(24.3%)|
|Molycorp (NYS: MCP)||*||(13.6%)|
|VanceInfo Technologies (NYS: VIT)||**||(10.3%)|
With the markets rising 260 points on Friday, or 2.2%, stocks that went down by even larger percentages are pretty big deals.
That's going to leave a mark
This is a first for me: owning shares in a company that's a target of a big shorting outfit and getting hit with a major drop in shares as a result of a report published about the company. Bio-Reference Labs, a clinical lab testing outfit, was the target of an investigation by short sellers at Street Sweeper, who previously targeted companies such as Chinese coal operatorL&L Energy (NAS: LLEN) , independent energy companyNorthern Oil & Gas (NYS: NOG) , and OLED specialist Universal Display (NAS: PANL) .
The article that caused Bio-Reference's plunge on Friday was actually the second part of a two-part article, the first having been published at the start of the month, which began the stock's fall from grace. It's down 38% over the past two weeks.
Now I feel like one of those Internet discussion-board posters, because I'm not seeing much of a "there" there. They point to some shady past associations and perhaps some too-good-to-be-true growth numbers, but if there's a smoking gun I'm not seeing it. There's a lot of innuendo and unsubstantiated discussion-board chatter cited as fact (you can read the two-partpiece here for yourself), but little in the way of hard facts. I never dismiss a short-seller's allegations out of hand, but it's notable that Street Sweeper fully closed out its short position. Seems they think they've achieved the maximum damage they could at this point.
Unlike my fellow Internet=posting investors who scream for SEC investigations of short sellers, I actually welcome these opportunities for two reasons. First, it gives me a chance to review my rationale for investing in the company -- were my own assumptions correct? -- and, second, is this now a big buying opportunity? I must say I'm definitely leaning toward the latter.
The company certainly thinks it is, announcing a 1 million-share buyback program. While announcing a repurchase plan and actually buying back the stock are two different things, Bio-Reference (naturally) said the Street Sweeper allegations were "inaccuracies, half truths, and complete fabrications" that made its stock undervalued.
With more than 300 CAPS members weighing in on Bio-Reference, and 95% thinking it would beat the market, I'd like to hear what you have to say in the comments section below or on the Bio-Reference Labs CAPS page. Add the stock to your watchlist to see how the drama unfolds.
A tarnished outcome
Ever since China ignited a modern-day gold rush by limiting the export of rare-earth metals -- it's just about had a lock on their production until it did that -- the industry has been running along on a razor's edge. On the one hand, the metals' relative rarity caused prices to jump, attracting miners to the space in hopes of profit, while on the other hand, the potential that new resources will be dumped on the market will depress prices and profits.
The Fool's Travis Hoium pointed out that when Lynas opened a mine in Australia and a processing facility in Asia, the inexorable rise came to a screeching halt. Rare-earth metals miner Molycorp suffered something of the sort yesterday, when it reported revenues surging 39% from last year, and its Phoenix project is moving full steam ahead. But that means even more product on a market that's already looking for alternatives.
Some countries/[companies] are fed up with the manipulation and will buy from Lynas and Molycorp even at a slightly higher pricing. Independence in critical rare earths will give the first few non-China producers and edge. Overall Molycorp is at the high end of [its] value range given [its] current output at current prices. [Its] potential, however, fueled by [anti]-China sentiment will help it keep an edge and step ahead.
Chinese IT outsourcing specialist VanceInfo Technologies has been suffering from the demise of fellow outsourcing shop Longtop Financial Technologies, as the entire sector was tarnished with the broad brush of fraud. VanceInfo has the same auditor, Deloitte, that Longtop did, and perhaps it was the decision to continue retaining them that sent its shares down. China is ostensibly looking to change the way the world views its ingrained culture of financial fraud, and that could have ramifications for the Big Four accounting firms doing business there.
VanceInfo has a tough road ahead of it to create in China the same sort of growth Indian outsourcing pros like Infosys (NAS: INFY) or Wipro have achieved. There was nothing specific to account for last Friday's decline, but the stock is down almost 75% since the start of the year.
While 89% of the 263 CAPS members rating VanceInfo thinking it could beat the Street going forward, the low two-star rating they've assigned it suggests they think there are still better places for your money. Add it to the Fool's free portfolio tracker to see whether the outsourcing specialist can overcome the reluctance many investors have toward Chinese small-cap stocks.
Ready for a resurrection
Just because your stock has taken a beating, that 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 contributorRich Dupreyowns shares of Bio-Reference Laboratories, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Bio-Reference Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Universal Display. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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