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)

Thursday's Change

MannKind (Nasdaq: MNKD  ) ** (32.3%)
F5 Networks (Nasdaq: FFIV  ) ** (21.4%)
Subaye (Nasdaq: SBAY  ) *** (6.5%)

Yesterday the market fell more than 100 points, only to rally back almost 200 points higher, before settling down essentially unchanged at the close. Yet stocks that went down even more are bigger deals.

The devil's in the details
Investors were aware the FDA could reject MannKind's inhaled insulin therapy, Afrezza, but with founder Alfred Mann buying up company shares ahead of the decision, it seemed there was some confidence it would get the nod.

Instead, the FDA threw the biotech for a loop by issuing a complete response letter that calls for MannKind to run more tests on the drug. While the company had already begun the trials, it creates a limbo for investors. Many are confused by the decision, since the agency didn't require additional tests in its last complete response notice, and analysts are of the mind that it wasn't so much that MannKind did anything wrong with Afrezza -- though it did update the delivery device – as it was that the FDA "moved the goalposts" on the company.

Yet it's also not unheard of for the FDA to request proof that new manufacturing processes are equivalent to what was achieved during the testing phase. Amylin Pharmaceuticals (Nasdaq: AMLN  ) and Alkermes had to show Byetta was the same at a commercial scale as it was at the clinical trial stage.

As for Mann's stock purchases, it wasn't so much that they weren't a bullish indicator, but rather they were part of an agreement the company had with a lender. In exchange for a $350 million revolving loan agreement, lender Seaside 88 would buy MannKind stock at a discount, but Mann himself had to buy similar amounts.

While 82% of the CAPS members rating MannKind think it will ultimately win out, it's going to be a long slog until the new trials are completed. Let us know on the MannKind CAPS page whether investors long on this stock should exhale.

Delay is preferable to error
In the wake of F5 Networks' earnings miss, analysts have rushed to say the sell-off in the stock and the networking industry -- Rackspace (NYSE: RAX  ) and Riverbed Technology (Nasdaq: RVBD  ) dropped in sympathy -- was overdone. Revenues were actually at record levels, non-GAAP earnings doubled, and cash flows were strong.

Now if you look back at the shellacking Cisco (Nasdaq: CSCO  ) took when it reported earnings, there was indeed a deeper sense that something was wrong. Durable-goods orders had fallen as computers and electronics dropped and communications equipment was down sharply.

But now, Census Bureau data show durable-goods orders were essentially flat from October to November, a big improvement over the prior period, with the Fed's Beige Book showing growth, though slow, across all regions. F5's situation is different from the one that faced Cisco, and it could be a very good time to reload. Highly rated CAPS All-Star nedliug thinks so, too:

I'm voting the technology here, numbers be damned. F5 makes an excellent product and is the clear market leader for load balancing technology. These are everywhere, and our reliance on this technology is growing.

You can follow along with its trials and tribulations by adding the stock to the Fool's free portfolio tracker.

Not so rarified air
For Chinese e-marketing firm Subaye, it's been a long week down. The stock is off more than 30% over the past five days with a 16% decline Wednesday. Lately it's been launching a number of services that seem more like latching onto the latest hot trends than a well-thought-out business model, including an online 3-D mall, where sellers and buyers have to pay for the privilege of shopping in three dimensions, and a Groupon-like service called Groupbuy.

CAPS member lumberst looks past such add-on services, preferring to concentrate on its core B2C business model:

Possibly a multibagger. looking for continued customer growth in their cloud computing services for small business clients. Not sure about the 3-D online mall idea, but if it doesn't work out the downside at the current share price is limited as long as they continue to grow their customer base.

You can tell us on the Subaye CAPS page what you think of its business moves.

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.

Rackspace is a Motley Fool Rule Breakers recommendation. The Fool has created a bull call spread position on Cisco Systems. Motley Fool Alpha owns shares of Cisco Systems. 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 here. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (5)

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 January 21, 2011, at 11:11 PM, Medicalrecordman wrote:

    SBAY ? What everyone needs to know about these guys is that they pay for EVERYTHING with stock. They also will repeatedly revise EPS guidance downward, sucking people into the stock with lofty B.S. projections, all the while selling more and more shares. SBAY has been and always will be a serious dilution story that NEVER meets bogus projections. Buyer beware for sure.

  • Report this Comment On January 22, 2011, at 4:16 AM, will19699 wrote:

    FFIV is a definite "time to reload" Earnings were not even bad. Why that massive sell off? I mean I could see down $5 bucks, but $30?? I think it's manipulation for big funds to re-load on the cheap. I think it will be right back to $140 by next earnings. 41% growth and 69% increase in sales. Come on, bottom line missed by few million. Their growth is still excellent.

    Get real Wall street.

  • Report this Comment On January 23, 2011, at 5:09 PM, jrmart wrote:

    INVESTOR REALITY CHECK.

    Years ago, the SEC sent Martha Stewart to jail for an insider stock trading violation.

    Today, no one from GS is in jail because GS bought a get out of jail card from the SEC for $500 million dollars after making billions in questionable profits.

    The old saying, MONEY TALKS & BS WALKS is still real at the SEC.

    Unfortunately, fair and equal treatment for all investors under the present SEC administration is not reality.

  • Report this Comment On January 25, 2011, at 12:22 PM, stopreportjerk wrote:

    Those of you who have the knowledge should spread it to people who do not. So If anyone has the time please do not hesitate to come check out my sitehttp://longtheworld.com/ click on some ads for support (LOOK AROUND=click ads please), leave a comment, bring some interesting and knowledgeable discussions I would appreciate it and so would the sites followers.

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