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

Ruby Tuesday (NYSE: RT  ) * (18.3%)
SuperGen (Nasdaq: SUPG  ) ** (12.4%)
American Superconductor (Nasdaq: AMSC  ) **** (8.1%)

After tumbling on reports of yet another major earthquake striking Japan, the markets rallied 100 points higher and ended up closing down just 17 points on the day. So stocks that stayed down by even larger percentages are pretty big deals.

The devil's in the details
Unless it's Hurricane Katrina, analysts are usually right in harshly critiquing a company's reliance upon the weather as an excuse for missing quarterly earnings results. Restaurant chain Ruby Tuesday used that excuse yesterday and got pummeled for it. While it does have a large presence in the Northeast -- New York, New Jersey, and Connecticut alone account for more than 10% of its store count -- and the winter snowstorms hit many retailers hard, Southeastern states like Florida, Georgia, and Alabama add up to more than 27% of the total, suggesting it's really the new fresh bread program that isn't having the draw intended.

Panera Bread (Nasdaq: PNRA  ) wins kudos for its fresh menu selections, but Ruby Tuesday found it eating into its profit margins. That's not surprising really. Freshness is becoming a key differentiator for food servers, and even Boston Beer (NYSE: SAM  ) is launching a freshness program for its suds. It admitted upfront, however, that making sure bars and restaurants have the freshest beer on tap would likely sip off some profits.

While weather can be a too-worn path traveled by executives seeking the easy answer to placate investors, I'm not so sure Ruby Tuesday should have been trashed as much as it was because of it. This was an especially harsh winter that actually affected much of the country at one time or another, even those sunny southern states. I think the sell-off was overdone, and I've marked the restaurateur to outperform the market over the next few months -- longer term, I'm not so sure about.

Dine on the diverse opinions found on the Ruby Tuesday CAPS page and serve up your own thoughts on its future.

Cracks in the foundation
One plus one wasn't adding up for investors yesterday after cancer drug developer SuperGen announced it was merging with Astex Therapeutics in a $55 million deal once all is said and done. SuperGen, despite paying Astex shareholders $25 million upfront with an additional $30 million in stock and cash over the next 30 months, will be folded into Astex's identity. The new company will be known as Astex Pharmaceuticals and will trade under a new ticker symbol, ASTX.

There are some lucrative milestone payments to be realized from the merger, as much as $2 billion, from partners such as GlaxoSmithKline (NYSE: GSK  ) , Johnson & Johnson (NYSE: JNJ  ) , and Eisai Pharmaceuticals, one of Japan's top drug giants.

Although investors sent the stock tumbling yesterday, 96% of the CAPS members rating the drug developer believe it will outperform the broad market averages. Perhaps they though the amount being paid and the loss of identity were too much, but the company -- and the stock -- still seems to hold a lot of promise. Add SuperGen to your watchlist to see how this merger develops.

Not from concentrate
It's a warning investors fail to heed all too often: Companies with a concentrated customer base are prone to big corrections when the channel dries up. American Superconductor investors found that out yesterday after it said its biggest customer Sinovel, which accounts for almost 80% of its revenues, refused shipments and hasn't paid the bills for prior shipments.

American has been racing to diversify its customer base by making acquisitions and adding China's other two turbine makers to its client roster. Only there was no way they were going to be able to offset any decline from Sinovel anytime soon, and the hammer Sinovel dropped on the wind turbine electrical components maker hit hard.

Perhaps hit hardest of all is Kevin Douglas, a 10% owner of American Superconductor stock who has been on a spending spree buying up shares left and right. He spent more than $122 million on the stock in 2010, but bought almost half of them since November.

CAPS member rofgile admits he may be buying a falling knife in American Superconductor but thinks the potential for this being a temporary problem is greater than Sinovel finding another supplier.

Sinovel stopping orders of [American Superconductor] is definitely bad and impacts revenue immediately. If this means that Sinovel is replacing [American] with a Chinese supplier, this will have very negative effects for a long term. If Sinovel is only pausing on orders because of too high an inventory, this drop is greatly overstated.

I'd probably let the dust settle a little before moving in myself, but what's your take? Let us know in the comments section below or on the American Superconductor CAPS page.

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 on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.

Johnson & Johnson is a Motley Fool Inside Value and a Motley Fool Income Investor pick. Panera Bread and Boston Beer are Motley Fool Stock Advisor selections. GlaxoSmithKline is a Motley Fool Global Gains pick. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Boston Beer, GlaxoSmithKline, and Johnson & Johnson. Motley Fool Alpha owns shares of Johnson & Johnson. 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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