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

Inspire Pharmaceuticals (Nasdaq: ISPH  )

**

(58.7%)

Zale (NYSE: ZLC  )

*

(12.0%)

China GengSheng Minerals (Nasdaq: CHGS  )

*

(19.0%)

The market decided to start the New Year off with a bang, jumping nearly a full percentage point. Yet stocks that went significantly in the other direction are still big deals.

The devil's in the details
With a name like Inspire Pharmaceuticals, the joke practically writes itself. The company's latest clinical test results failed to inspire confidence in its cystic fibrosis drug, denufosol. There wasn't a statistically significant difference between the results obtained by the drug and those offered by a placebo, and investors knew the FDA wouldn't bestow a nod to the drug on evidence like that.

Fortunately for Inspire, it does have other products on the market, such as its pinkeye treatment Azasite and dry-eye treatment Restasis, which is marketed by Allergan (NYSE: AGN  ) . That said, sales of the latter have been falling.

Even Wall Street's analysts were unanimous in their belief that Inspire would outperform the market. But with the stock now cut in half, CAPS member Cjbrat1 believes the risk-reward ratio tilts heavily in favor of Inspire's future growth.

Let us know on the Inspire Pharmaceuticals CAPS page how long it'll take before the market gets inspired to back the company's next leg up.

Taking your eye off the ball
After diamond retailer Zale tripled in value over the past four months, investors suddenly believed that the stock really should be valued like cubic zirconia. A Bloomberg report blamed the fall from grace on higher put options. But if that's the case, why wouldn't the market also turn against online retailer Blue Nile, too? Although its stock is up only 35% over the past quarter, these are some of its highest levels in the past year. Tiffany (NYSE: TIF  ) has enjoyed a nice run-up as well -- without having its legs cut out from under it.

Luxury goods in general have been resilient despite the recession and shaky recovery. Leather goods maker Coach (NYSE: COH  ) , for example, has found the right combination of levers to pull. Between sales here at home and new markets in China, Japan, and France, Coach has defied the experts.

The growing strength behind diamond retailers' numbers indicates that the sector's making a fairly broad move higher. Yet Zale doesn't have the same cachet as Tiffany or Coach, and with its bricks-and-mortar operations, it's a more lumbering beast than Blue Nile. That could help explain why CAPS members are split virtually in half on whether Zale can continue outperforming the market.

You can also add it into Fool.com's free portfolio tracker and have all the Foolish news and analysis compiled for you in one spot.

Not-so-rarefied air
The same forces that pushed China Shen Zhou Mining (NYSE: SHZ  ) were also apparently pushing China GengSheng Minerals to recent nosebleed levels: namely, an unsustained belief that these companies were involved in mining rare earth minerals. China Shen Zhou mines fluorite, while China GengSheng manufactures ceramic products like the proppants Carbo Ceramics produces for the oil and gas industry.

Analysts have been generically lumping these stocks together, as the rare earth minerals' limitations raise global concerns about their availability. That's caused investors to race into the companies, thinking they'll be worth more as a result of their scarcity. But without even a tangential relationship to the REE issue, these companies are bound to disappoint.

CAPS member pchop123 correctly considered China GengSheng's run-up in price unwarranted, and urged investors to be wary. That matches the opinion of a large chunk of the CAPS community, who've rated GengSheng to underperform the broad market averages. Some 45% of the 100 CAPS members rating it don't believe the company can turn in market-beating performances. You can mine their opinions on the China GengSheng Minerals CAPS page for further insights.

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 simply follow 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.

Blue Nile is a Motley Fool Rule Breakers recommendation. Coach is a Motley Fool Stock Advisor pick. The Fool owns shares of Coach. 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. 

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


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