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

RadioShack (NYSE: RSH  )

*

(11.3%)

Mecox Lane (Nasdaq: MCOX  )

**

(11%)

OmniVision Technologies (Nasdaq: OVTI  )

****

(7.8%)

Yesterday the market jumped 108 points yesterday, or nearly 1%, as a buyback announcement by Intel (Nasdaq: INTC  ) helped fuel optimism that maybe the earnings season won't be so bad after all. Yet stocks that headed in the other direction by large percentages are also big deals.

The devil's in the details
After consumer electronics giant Best Buy (NYSE: BBY  ) short-circuited last month, it shouldn't have been much of a surprise to see RadioShack blow a fuse as well. Consumers turned to online retailers like Amazon.com (Nasdaq: AMZN  ) to get their electronic goods while bricks and mortar business sat and counted snowflakes.

Best Buy had the added burden of having bet big on Internet-ready and 3-D televisions when the buying public wasn't ready to upgrade their sets just yet, after having gone through the last cycle only a couple of years ago. It's likely to be a trend that grows, just not yet. For its part, RadioShack has focused on the smartphone trend, which you'd think would have helped its business, but T-Mobile's business has been a drag for the electronic doodad seller and consumers when they have bought phones there have opted for lower margin models.

So while The Shack saw sales rise 4% and comps rose 1% in the quarter, profits were down sharply in a range of $0.50 to $0.54 per share from $0.60 a year ago. And that's despite there being 15 million less shares in the market as RadioShack bought back large blocks of stock.

With its CEO also hitting the bricks at the same time RadioShack, its stock is more than a third below its 52-week high. CAPS member Prodders worries it may be a value trap, but the prospects for a buyout also grow: "Probably a bit 'value trappy' at this point, but should be some value in the phones side of it, and possible target for BestBuy, so worth a shout at a pretty depressed P/E."

With fewer than 40% of the CAPS All-Stars rating RadioShack think it will ultimately win out, it's not surprising investors took the stock out to the woodshed. Let us know on the RadioShack CAPS page if you think there might be some value remaining.

Delay is preferable to error
IPOs are supposed to be exciting times. Companies time their entries into the market to capitalize on their growth prospects and the expectations of investors who feed into that. Sometimes, however, it's nothing more than striking while the iron's hot and grabbing as much money as possible.

Despite being brought public by the respected folks at Sequoia Capital -- top tech VCs who invested in Google and Oracle -- critics might contend the latter scenario is exactly the route Chinese online clothing retailer Mecox Lane took.

When it went public this past October at $11 a share, it immediately climbed to over $17. There were high hopes for its future, and comparisons to Amazon.com were natural, but just one month later it reported third-quarter earnings that indicated things were far more bleak. Gross margins were crushed by 400 basis points, SG&A costs and operating expenses soared 20%. The trial lawyers who immediately swarmed over the big drop in its stock suggest it should have realized those factors before its IPO and disclosed them.

Although the stock continues to fall, CAPS All-Star vistapaloalto holds out hope that with an otherwise sound business model, Mecox Lane is a great value at these prices. But you can follow along with its trials and tribulations by adding the stock to the Fool's free portfolio tracker.

Not so rarified air
My guess is the analyst who downgraded OmniVision Technologies because Apple (Nasdaq: AAPL  ) might move to two suppliers for image sensors for the upcoming iPhone5 might be a little shortsighted.

Admittedly locking up a customer and having a monopoly on parts is a nice situation to be in, but with the iPhone being offered to Verizon (NYSE: VZ  ) customers we're talking about the potential for some very large volume sales, even if you have to share the space with someone. Of course, that means whoever that other supplier might turn out to be -- Sony? Panasonic? -- they've got a lot of miles to cover to catch up with OmniVision's lead.

I've indicated on CAPS I think it's going to outperform the market for at least the next year or so. That puts me in good company with All-Star like russfischer1013 who see the iPhone5 business as just the beginning.

Join us on the OmniVision Technologies CAPS page whether you agree, or if you think Apple's going to hang up on it.

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.

Best Buy and Google are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Apple, Amazon.com, and Best Buy are Motley Fool Stock Advisor selections. The Fool has written puts on Apple. The Fool owns shares of Apple, Best Buy, Google, and Oracle. 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.


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