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 make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit:

Stock

CAPS Rating (out of 5)

Monday's Change

Mahindra Satyam (NYSE: SAY  )

**

(23.7%)

Vical (Nasdaq: VICL  )

****

(20.9%)

Oncolytics Biotech (Nasdaq: ONCY  )

**

(7.6%)

The devil's in the details
On a day when the market was up big at 198 points, or almost 2%, Friday's declines that went big in the other direction are big deals.

Volatility, thy name is Vical. The biopharmaceutical was on a roller coaster ride last week, with shares having a third of their value sliced off, then bounding back 10% the next day, only to close out the week on the losing end of the stick. Its blood vessel regeneration therapy being developed with sanofi-aventis (NYSE: SNY  ) was found to be no more effective than a placebo, and the markets are still sorting it out. It's also not helping that it priced its secondary offering at $2.25 a share. No need for the stock to trade much higher than that.

Yet CAPS All-Star member and biotech guru zzlangerhans expects to see the stock bounce back, primarily because it will have results to report on a different treatment next year.

Vical's strongest asset at this time is the phase III trial of Allovectin-7 in melanoma, with topline results expected in mid-2011. I expect the results of this trial to be negative but the nature of baby biotech should cause the share price to increase dramatically in the months leading up to topline results. In addition, Vical has ongoing early phase trials of vaccines for H1N1 and HSV-2. With the cash from the dilutive financing under their belts, the Vical story is far from over.

The sky's not the limit
Investors were pretty shocked back in January 2009 when Indian information services specialist Mahindra Satyam found itself in a fraudulent accounting scandal. At the time it was known as Satyam Computer Services and was saved from oblivion by Tech Mahindra. Yet it was never able to really recover as IT outsourcing firms like Cognizant Technology Solutions (Nasdaq: CTSH  ) and Infosys (Nasdaq: INFY  ) reported ever-stronger results, and Satyam had to delay filing its financial statements.

Apparently they're still so convoluted that Satyam will delist from the New York Stock Exchange in mid-October, and that was the reason for the IT specialist's fall last week. It had always maintained a strong following on CAPS with almost 97% of the nearly 1,400 members rating Satyam to outperform the broad market averages. That will come to an end when it finally delists.

Don't bring me down
While Oncolytics Biotech is another biotech that fell last Friday, its shares are still some 20% higher than they were two weeks ago and 45% above the level they traded at the start of the month when it reported a mid-stage ovarian cancer study involving its Reolysin treatment was approved. It's hoping its proprietary formulation of the reovirus can be educated to recognize and kill cancer cells, but as a largely unknown biotech it has been flying below the radar of most investors.

It hasn't escaped the notice of CAPS All-Star UltraLong who says Oncolytics long history of diluting shareholders probably won't change much for the immediate future.

Sure they have a phase III trial in the works for Reolysin, but the overall revenue impact if approved based on what I'm seeing is about 60-70M within four years... so they're already trading at 4-5 times their revenue value four YEARS from now. They probably have enough cash to make it 16 months from this point on, so you know what that means..more diluting! A long history of losses and frankly just too much froth. It's trading higher because it's a low volume stock that has caught a hedge fund's attention, nothing more. It will be back under $4 in no time.

There's always a lot of speculation about these wonder drugs until they reach late stage trials, which might be why more than a third of CAPS members rating Oncolytics think it will underperform the market. They'll want to see something more concrete down the road.

CEL-SCI (NYSE: CVM  ) , for example, has been full of promise trying to get into phase 3 trials with its Multikine head and neck cancer treatment, and its stock has been running higher on rumors of a possible buyout. But on Friday they finally sagged too, as it's tough to keep momentum going without something more to show for it.

Let us know in the comments section below or on the Oncolytics Biotech CAPS page if this stock will need a dose of Ritalin to combat its volatility. You can also add it to your My Watchlist page where all the Foolish news and analysis about this stock is aggregated for you.

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's 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, all from the stock's CAPS page. Then you can decide for yourself whether it's ready to come back from the dead.

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 currently does not own any stocks as you can see here. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2010, at 3:42 AM, Makawao808 wrote:

    Wouldn't it make sense to mention WHY Mahindra Satyam dropped almost 24% on Monday?

    They're allowing the ADR to be delisted from the NYSE in October 16. It's going OTC....possibly Pink Sheets, since they can't provide any annual reports to the SEC.

  • Report this Comment On September 28, 2010, at 9:23 AM, TMFCop wrote:

    Makawao808,

    In the second paragraph on SAY, I wrote:

    "Apparently they're still so convoluted that Satyam will delist from the New York Stock Exchange in mid-October, and that was the reason for the IT specialist's fall last week."

    Cheers,

    Rich

  • Report this Comment On September 28, 2010, at 4:17 PM, crlowryjr wrote:

    Since I never experienced a 'delisting' before, I panicked and sold all my positions hoping to get out before the bottom dropped. I ended up about 26% down overall.

    I view this as pretty much the 3rd slap in the face to the American investors by Satyam leadership.

    1st: off-shoring soooooo much work to Satyam in the 1st place - depriving American workers of sorely needed jobs while lining the pockets of CxOs and insiders.

    2nd: the massive fraud perpetrated by Ramalinga Raju.

    3rd: last week announcing Satyam would release it's financials on Friday and suggesting they would be merging with Mahindra (which drove the price up - which I assume the insiders used to sell off their stocks).

    I have lived and worked in India for several years, traveling all over the country so I should have known better ... corruption is pretty much the way things get done, and it's a facet of every elements of life there.

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