Why Did My Stock Just Die?

Your stock just took a nosedive, but don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can create excellent buying opportunities. Here's the latest crop of cratered stocks that could do that:

Stock

CAPS Rating (out of 5)

Friday's Change

Celldex Therapeutics (Nasdaq: CLDX  )

***

(26.2%)

Quiksilver (NYSE: ZQK  )

***

(11.5%)

Avanir Pharmaceuticals (Nasdaq: AVNR  )

**

(7.2%)

Source: wsj.com.

The devil's in the details
On a day when the market rose 1.24%, Friday's declines are big deals. Shares of ski and surf retailer Quiksilver dropped after third-quarter revenues came in lighter than new powder, and currency exchange rates made it look worse. While it was able to beat analysts' earnings expectations, its outlook for the rest of the year was weak, with revenues expected to fall in the mid-teens range compared with a year ago.

That would put the company in the same category as Pacific Sunwear (Nasdaq: PSUN  ) , which has been struggling to turn its operations around. Unlike Zumiez (Nasdaq: ZUMZ  ) , which targets a similar clientele, PacSun posted a 10% decline in same-store sales. Zumiez's comps rose 9%.

The short bet against Quiksilver then might have been well-timed, but it might not be one that can be sustained if currency effects move in the right direction once again.

Investors in Celldex Therapeutics might have wished that only the impact of currency rates had affected the stock. The company tried to put a hopeful spin on the news that Pfizer (NYSE: PFE  ) had canceled its agreement to develop the brain tumor vaccine rindopepimut because it was regaining rights to the drug. But the market realized that Celldex will face a bit of a financial crunch in taking the treatment to phase 3 trials by itself.

Yet this sell-off presents something of an opportunity for investors. Pfizer backed out not because of discouraging results, but because it wasn't a priority for it any longer. Celldex has generated encouraging results in mid-stage studies, which means it ought to have an easier time trying to pick up another partner for the treatment. This seems to be more of a temporary setback for the biotech.

Don't bring me down
Fortunately for Avanir Pharmaceuticals investors, it seems that shares fell not because of a lost partner, but because of something not nearly as dramatic: News that the company was preparing a mixed-shelf offering of $75 million.

This might actually be a positive development for the company. The Food and Drug Administration is set to rule next month on Avanir's drug Zenvia, which targets individuals suffering from uncontrollable bouts of laughing or crying. CAPS member efarev is preparing for a positive decision and Avanir might be, too. If that happens, the stock would rise accordingly, and because shelf registrations give a company two years to sell the shares, there might be a more opportune time to sell them. Yet Avanir has tapped the equity markets before, using sudden price increases in its stock to capitalize on enthusiasm for its drug's potential, and earlier this year CAPS All-Star zzlangerhans figured Avanir would resort to dilution to fund itself.

The positive phase III trial results led to a poorly sustained high of 2.84 and were followed by a nadir of 1.7. This will be a somewhat shaky NDA [New Drug Application] leading to a product with limited commercial potential. And 25M in cash at the end of 2009 indicates the company will not have sufficient liquidity to carry them through the PDUFA [Prescription Drug User Fee Act]. Does anyone want to bet we'll see dilution soon?

Individuals suffering from pseudobulbar effect often have some underlying neurological problem, such as multiple sclerosis or ALS, better known as Lou Gehrig's disease. Avanir has said that Zenvia has shown positive outcomes when used in connection with other drugs treating these illnesses, like paroxetine -- the generic of GlaxoSmithKline's (NYSE: GSK  ) Paxil. So it may want to market the therapy for other illnesses.

Head over to the Avanir Pharmaceuticals CAPS page and let us know what you think.

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 at what has happened to your stock can give you an edge over other investors who just react to the market's lead.

That's why it pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made. Then you can decide for yourself whether it's ready to come back.

GlaxoSmithKline is a Motley Fool Global Gains recommendation. The Fool owns shares of GlaxoSmithKline. Pfizer is a Motley Fool Inside Value pick and Zumiez is a Motley Fool Hidden Gems selection. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Fool has a disclosure policy.


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