Why Did My Stock Just Die?
CAPS Rating (out of 5)
|Overstock.com (NAS: OSTK)||***||(11.2%)|
|Orchard Supply Hardware Stores (NYS: OSH)||*||(10.6%)|
Source: Motley Fool CAPS.
The markets were essentially flat on Friday, so stocks that went down by large percentages are pretty big deals.
Shares on clearance
A cavalcade of errors by online closeout retailer Overstock.com, from deemphasizing discount coupons to the inexplicable decision to rebrand itself as O.co, led to a surprising fourth-quarter loss of $3.4 million.
2011 might be a year remembered for bungled management decisions everywhere. Netflix moved to adopt (and quickly abandon) the name Qwikster for its ubiquitous red envelope mail order movie rentals. Hewlett-Packard launched a tablet computer, then pulled it, then killed the PC division altogether, only to resurrect it again.
Add Overstock to the list. Earlier in the year, Google accused the company of breaking its "natural search" guidelines by encouraging faculty and students at colleges and universities to earn discounts by posting links to Overstock pages, which would improve their placement on Google search results. It compounded those errors by diverting marketing resources from its discounting programs, which is arguably one of the closeout retailer's biggest attractions, to a loyalty program where it found its customers are only loyal if they can find the website.
And Overstock made it exceptionally hard for customers to do that by rebranding itself with some obscure O.co site wherein most people typed in O.com -- according to CEO Patrick Byrne, who took blame for the snafu, eight out of 13 people mistyped the address (a bizarre way to report a figure from an equally odd CEO).
It's decisions like these that account for why less than a third of CAPS members rating Overstock think it can beat the Street, and why I've had an underperform rating on it for almost two years, one I'll be maintaining. Add Overstock.com to your watchlist to be notified when it makes its next blunder.
The family tree is wilting
After being spun off from Sears Holdings (NAS: SHLD) in an obtuse way, investors in Orchard Supply Hardware Stores have been treated to a fairly good performance thus far -- well, if you discount the nasty sell-off that greeted the new issue because of the tax implications Sears handed them.
Yet such special-situation investments are where profits can be made since they tend to be accompanied by a healthy dose of don't-want-itis. It was one reason I marked Orchard Supply on CAPS to outperform the broad averages and have been rewarded with a nice return so far.
And since I didn't find any particular news accounting for its fall on Friday and since its former parent got a nice bounce because it's having a fire sale on Canadian properties, I'm not too concerned there are any major problems developing here. Despite the giveback on Friday, the hardware shop is still 70% higher than the low point it hit.
While still undiscovered by most of Wall Street and Main Street -- no analysts follow it and less than a dozen CAPS members, myself included, have rated it -- all but one think it will outperform the market. So add the hardware store to the Fool's free portfolio tracker to see if it can repair its shares and let us know on the Orchard Supply Hardware Stores CAPS page if you think it will turn to searing new growth.
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. Balance out the extremes by finding companies the will help you build a solid retirement portfolio. You can find them in The Motley Fool's brand new report, "3 Stocks That Will Help You Retire Rich." This is a special free report that you can access right now simply by clicking here -- it's free.
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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