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)

Yesterday's 
Change

Satcon Technology (Nasdaq: SATC  )

****

(26.72%)

OmniVision Technologies (Nasdaq: OVTI  )

****

(10.24%)

Allied Irish Banks (NYSE: AIB  )

****

(15.53%)

The market dropped another 107 points, or almost 1%, as continuing concern about how rising oil prices will cause shocks throughout the economy. Amid this plunge, stocks that have fallen by even larger percentages become even bigger deals.

The devil's in the details
Following the decline in Power-One's (Nasdaq: PWER  ) shares after a disappointing earnings result, it shouldn't have been too much of a surprise that utility-scale power inverter maker Satcon Technology also came in weak. Where a rising tide generally tends to lift all boats, a receding tide can bring down all but the strongest industry players.

Even though Satcon's revenue more than tripled in the quarter, it posted a surprise $0.03-per-share loss -- the polar opposite of the $0.03-per-share profit analysts were expecting. Worse, it forecast revenue that significantly lagged what Wall Street was predicting. At its midpoint, Satcon said it expected sales 10% below analyst consensus guesses.

Yet one could have surmised that happening since Power-One also forecast a cloudy future too. With all six analysts following Satcon having expected it to outperform, it's apparent they were caught off-guard by just how weak the sector is, particularly since American Superconductor (Nasdaq: AMSC  ) surprised to the upside. CAPS members have also been generally bullish on its prospects, with 96% of those rating it believing it was going to beat the Street.

Let us know on the Satcon Technology CAPS page whether it will be able to power up again in the near future.

Drill down further
Showing just how central Apple (Nasdaq: AAPL  ) is to the success of many businesses, shares of OmniVision Technologies plummeted when an analyst said he believed the image sensor maker was losing market share in the PC segment, and was late to the game for Apple's iPhone 5. Of course, the crazy thing about the market's reaction is that earlier this week, a different analyst had said iPhone 5 supply for image sensors was going almost "exclusively" to OmniVision.

The resulting sell-off underscores just how suppliers live or die by the latest innovations Apple brings to market. The iPad, for example has dramatically cut into PC sales from Hewlett-Packard (NYSE: HPQ  ) and Dell. CAPS member CTB1000 believes OmniVision will ultimately ride Apple's coattails higher: "iPhone sales will increase with Verizon and OVTI will earn more design wins from other smartphone companies that want to keep up with APPL."

Let us know in the comments section below or on the OmniVision Technology's CAPS page whether you think the negative analyst report has a skewed image of its potential.

That sinking feeling
Despite a reverse 1-for-5 stock split and completion of a sale to Banco Santander of its interests in a Polish bank, Allied Irish Bank plummeted on the back of a new report from Fitch Ratings. Fitch said the costs of having bondholders "share the burden" on bank restructuring outweighed the benefits of the move.

Although investors who are still holding onto their bank's shares may hope that the reverse split will allow institutions to buy the stock again, its lingering financial malaise makes it unlikely they'd want to risk their capital there. One analyst notes that the combined debt of the six Irish banks including Allied was nearly triple the GDP of Ireland, meaning they're going to need to rely on continued bailouts to survive. Hardly a place to want to commit new money.

CAPS member rjzii isn't expecting much of a recovery from Allied in the near term, and thinks the risks it faces remain excessive:

Given how much the Irish economy has been struggling to show strong recovery and the 1:5 reverse split, there is still quite a bit of room over the short term for this stock to go down. Maybe a highly speculative long term play, but there is always the chance that unless the Irish economy starts showing major turnaround that you could be burned by another reverse split.

You can add Allied Irish Banks to your watchlist to see whether it will be able to reverse its ever-worsening condition.

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.

Apple is a Motley Fool Stock Advisor selection. The Fool has written puts on Apple. The Fool owns shares of Apple, and Power-One. 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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  • Report this Comment On February 24, 2011, at 6:09 PM, malcarada wrote:

    On the bright side of things, if they finally come back from the dead, the profits will be huge. Huge risk, huge profit.

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