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

Cheniere Energy (NYSE: LNG  ) ** (35.77%)
Urban Outfitters (Nasdaq: URBN  ) *** (16.66%)
Syntroleum (Nasdaq: SYNM  ) ** (14.04%)

In yet another wild swing, the markets roared ahead 124 points yesterday, or more than 1%, as investors set aside other concerns. It's a big turnaround, and appropriate for a month known for madness, and stocks that went down by large percentages are bigger deals still.

The devil's in the details
The confusing maze of interconnectedness among Cheniere Energy, its subsidiary Cheniere Energy Partners (NYSE: CQP  ) , and its Sabine Pass liquefaction facilities in Louisiana seems to have caught up with it after a hedge fund alleged its actually in default on its debt

It wasn't so long ago the facility was seen as the next stage of its growth strategy as Canada's largest natural gas operator, Encana (NYSE: ECA  ) , backed the proposal to export liquid natural gas, particularly to one of China's largest independently owned natural gas companies. But if the hedge fund is right, all bets are off and it could mean serious trouble.

Even before the charges arose, though, CAPS member GreatCormorant expressed doubt Cheniere would be able to extricate itself from its problems:

This company has huge investments in LNG terminals originally built for import. Since the Shale boom, there has been no need to import and Cheniere is currently in the process of converting its terminals to gas liquefaction. This is an expensive prospect for a company that has no revenue. And what if we get smart and start using more gas domestically? Or if drillers decide that they don't want to drill for $4 dollar gas?

Let us know on the Cheniere Energy CAPS page whether it will be able to diagnose the problem and get back on track.

Urban warfare
The earnings report from retailer Urban Outfitters shouldn't have surprised so many people considering last quarter it reported slowing sales, too. Retailers in general have been enjoying consecutive months of growing sales, but a more promotional period and shifting fashion tastes seem to have caught Urban short.

Last time out Urban Outfitters was able to forestall a stock drop by buying back large slugs of stock, a move I said didn't excite me all that much since companies tended to buy high and sell low. No such doings this time and the stock plummeted.

It ought to serve as a warning to other retailers like Abercrombie & Fitch (NYSE: ANF  ) that have also been riding high lately. Shoppers pushed spending out from the holidays into the first quarter as late-year winter storms kept everyone indoors. Comps were up about 4.2% from the year-ago period, but rising gas and food prices mean cutbacks may be forthcoming.

CAPS member Clint35 thinks the sell-off may be overdone as Urban has managed to right itself quickly after previous fashion miscues. You can dress up the Urban Outfitters CAPS page with your own fashion sentiments, then follow along with its progress by putting the stock on your free, personalized watchlist.

That sinking feeling
There was no real reason for Syntroleum's sell-off yesterday, but if a story in The Wall Street Journal pans out, now's an excellent buying opportunity.

The thrust of the story is that Syntroleum's deal with China's Sinopec, the country's largest refiner and distributor of transport fuels, puts it in a lead position ahead of companies like South Africa's Sasol (NYSE: SSL  ) , which uses a similar technology to convert coal to liquids. It had hoped to make headway there, but now it appears its project will be scrapped. Sasol hasn't been able to get approval to build its plant and the energy specialist is suspending all activities related to the project until a decision is made, if ever.

That leaves Syntroleum as the major player in the space in China, certainly not a region to be taken lightly and hardly a reason to sell off its shares.

While two-thirds of the analysts rating Syntroleum see it underperforming the market, the CAPS community, with 76% looking for it to beat Wall Street's estimates, has a decidedly different opinion. With that said, its low two-star rating does suggest that CAPS members think there might be better places for your money right now.

If there's still too much uncertainty for you, add Syntroleum to the Fool's free portfolio tracker to see whether it will ever really live up to its potential or simply crash and burn again.

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.

Sasol is a Motley Fool Income Investor recommendation. 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 (3) | Recommend This Article (6)

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 March 09, 2011, at 4:03 PM, camour wrote:

    The conclusions made have a lot to be desired. The issue with gas is not the price at the hole but the transportation of it. Pipe lines are bult to transport it and a lot of plumbing to bring it to individual houses. It is the cost of the intra structure of gas that matters. Oil wells waste it and burn it away because of the expense or cost of transporting it. It is for this reason that Chernier is worth the price and not because of the price of gas. When gas is low in price because it is plentiful the necessity of its movement becomes more evident.and feasible

  • Report this Comment On March 09, 2011, at 4:46 PM, GBSFOOL2 wrote:

    Once again we have an analysis that doesn't get to the issue. The value of he security has experienced a mis-pricing due to a perceived default of its notes. AFter its earnings, it hit a lof of $19.00 and should be $19.00 now. Nothing has changed with this security.

    To be sure, the author discusses everyihng the market knows already and the $19.00 price per share that existing before the filing of 8K included all of the issues he is raising. It is not that "something is catching up with the company" and your investment will suffer.

    Now to the story.

    On Feb. 15, a note holder for some reason decided to alledge in a default and demand letter that the company had a "technical" non-monetary default under its notes. It woudl be provision you would find in most notes, but it is rarely used as a basis for collecting by a lender/noteholder. Simply, put all notes have a provision that effectively states that financial statements will be prepared in accordance with US GAAP. Makes complete since doesn't it.

    So, Feb. 15, the company received the letter. FASB required that this event be disclsosed as a material subsequent event and in fact is material given the size of the notes. Moreover, the SEC requires the filing of the 10K and the 8K (matieral change). The company complied with the its reporting requirements by filing the 10K and 8K.

    The 8K

    Sabine Pass LNG, L.P. ("Sabine Pass"), our wholly owned subsidiary, has issued an aggregate principal amount of $2,215.5 million of senior notes (the "Notes"), consisting of $550.0 million of 7�% Senior Secured Notes due 2013 and $1,665.5 million of 7�% Senior Secured Notes due 2016, under an Indenture dated as of November 9, 2006 (as amended, the "Indenture") among Sabine Pass, each of the guarantors from time to time party thereto, and The Bank of New York, as Trustee.

    Sabine Pass LNG-GP, LLC, the general partner of Sabine Pass, received a letter dated February 15, 2011 (the "Letter") from lawyers representing Centerbridge Partners, L.P. and its affiliates (collectively, "Centerbridge"), claiming to be significant holders of the Notes and alleging that Sabine Pass is in default under the terms of the Indenture. Sabine Pass believes that all of the allegations in the Letter are without merit and that Sabine Pass is in full compliance with the Indenture.

    Centerbridge principally alleges in the Letter that the affiliate payments received by Sabine Pass from Cheniere Energy Investments, LLC ("Cheniere Investments"), a wholly owned subsidiary of Cheniere Energy Partners, L.P., under the Terminal Use Agreement between Sabine Pass and Cheniere Investments are not revenue of Sabine Pass under United States Generally Accepted Accounting Principles ("GAAP"). Therefore, Centerbridge alleges that Sabine Pass recorded revenue and earnings in 2010 on a basis that is not in accordance with GAAP and that, consequently, Sabine Pass reported financial statements that are materially false and misleading in violation of the terms of the Indenture. Centerbridge alleges that Sabine Pass is in default under the terms of the Indenture. If an event of default had occurred and were continuing, the maturity date of the Notes could be accelerated, in which case the Notes would be repayable at par.

    Centerbridge's assertions are wrong. Management has confirmed that revenues received from Cheniere Investments qualify as revenue under GAAP, that Cheniere Investments is engaged in the LNG business, and that Cheniere Investments has economic substance. Cheniere Energy, Inc. engages a nationally-recognized, independent, registered public accounting firm, different than its auditor, as its advisor to, among other things, assist it in determining that revenues are accounted for properly according to GAAP. That firm has agreed with management that the revenue treatment was proper.

    Sabine Pass, Cheniere Energy, Inc. and Cheniere Energy Partners, L.P. filed their respective Annual Reports on Form 10-K for the year ended December 31, 2010 with the Securities and Exchange Commission on March 3, 2011, all of which included unqualified audit opinions from Ernst & Young LLP dated March 2, 2011. Sabine Pass believes that it is in full compliance with the Indenture and there is no event of default, as evidenced by the audited financial statements dated March 2, 2011. Management has furnished the financial statements to the Trustee together with an officer's certificate certifying that to the signing officer's knowledge no default or event of default has occurred and is continuing. Centerbridge's actions have disrupted the businesses of Sabine Pass and Cheniere Energy, Inc. and its subsidiaries. We have filed a lawsuit against Centerbridge in the Harris County, Texas state district court for defamation, business disparagement and tortious interference with business relationships.

    The conclusion

    This is the worse type of default a lender can assert. This is Ernst & Young, a very strong accounting firm. Do we now really think the company improperly reported revenues? Really?

    How does the noteholder prove this? Now that is a smart question. It will be very difficult to prove, as expert testimony is required to prove it in front of a judge. Courts don't like these type of suites.

    Why would the noteholder do this? I have no idea. It is absurd. If you were clever, you would meet with the company and find out what can be done to repay the note. You wouldn't attempt to default the note, cutting the cmopany off from the capital markets. Not a good workout strategy.

    Was the note in jeopardy of being reapid? No, all payments have been made as agreed and there is not a monetary default.

    What has the noteholder done? Some pretty serious poential damage to the company, it shareholders, its customers, etc.

    Will the noteholder face a lawuit? CQP has alredy filed a suit against the noteholder. Will it face further liabilities as a result of this potentially negligent act? Yes, because the shareholders will probably be filing against the noteholders.

    What has the analyst community done? Citi upgraded the stock today and said the allegation of the default seeemd to be baseless.

    What would I do if I were the noteholder? Apologise and retract the default lettter stating there was a misunderstanding.

    Don't listen to these fools. They are using these events to make a different case. The market pricing is wrong, and if you are smart you will be a buyer here. It will be $19.00 in a few days.

    If there really is a serious failure to adhere to GAAP, I will be the first one to eat my words. I doubled my investment in calls and shares today.

  • Report this Comment On March 10, 2011, at 10:07 AM, TCock2 wrote:

    GBS - glad to see you on this post.

    It is not just Citi that is upgrading the stock, so are several other analysts. The company is a real brick & mortar company with a good business plan, receiving incremental government approvals as required for import/export (nice to have both capabilities by the way) and has major clients lined up with contingent contracts to buy their product.

    An very good and in-depth analysis of their FCF (Free Cash Flow) position, which is excellent and has been recently been noted by many analysts on multiple websites, can be found at

    http://seekingalpha.com/article/257195-squeeze-ideas-highly-...

    Not only is it an important read for LNG and others, it is a good educational piece for those that don't understand the importance of cash flow in running a company.

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