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

VirnetX Holding (NYSE: VHC  ) * (14.9%)
L&L Energy (Nasdaq: LLEN  ) ** (8.8%)
Universal Display (Nasdaq: PANL  ) *** (8.4%)

After three consecutive days down, the markets dropped another 117 points yesterday, or almost 1%, as economic forecasts got revised lower and pessimism crept back into the equation. Amid this gloomy outlook, stocks that fell by even larger percentages are pretty big deals.

The devil's in the details
It's not so hard to understand VirnetX Holding's fall from grace. It's enjoyed a terrific run up over the past few weeks, on pretty much no news specific to it. While it recently opened its communications software technology for licensing to meet 4G LTE specifications, the real moves in its stock began after AT&T (NYSE: T  ) announced that it was buying T-Mobile. Short sellers who may have been getting squeezed by the run were able to exact their revenge a bit after Jim Cramer said the tide was about to turn.

While the CAPS community tilts toward believing that VirtnetX can outperform the market averages, All-Star members are more wary; 56% of them think it will stumble. TSIF felt the company's lack of new news so long after its Microsoft (Nasdaq: MSFT  ) deal portended a fall, even though he gave it the thumbs up:

Essentially, I think Virnetx Holdings is "topping out". Thier win against Microsoft is getting a bit old in the teeth with no follow-up wins on their patents. Thier patent technology is growing, but still no revenues. There's a lot of forward speculation on what thier 4G patents might mean and 4G is starting to mature.

Of course, a new announcement might send it right back up. Tell us on the VirnetX Holdings CAPS page whether we should expect to hear something soon.

Cracks in the foundation
The fallout from the accusations of fraud against Puda Coal (Nasdaq: PUDA  ) are likely weighing on L&L Energy. Both are Chinese small-cap coal miners, and L&L has its own unsavory past. However, L&L began the long road down well before Puda investors got caught by allegations of malfeasance leveled against the firm.

Earlier this year, online fraud-fighter The Street Sweeper exposed many of the problems surrounding an investment in L&L that it warned could have it "go up in smoke." CNBC commentator Herb Greenberg hit L&L last December as a company to beware. The coal miner's stock trades 55% below where it started the year.

Yet plenty of investors agree that L&L is a growth story, thanks to its ability to generate free cash flow. The CAPS community has weighed in, and 93% of those rating the coal miner believe it will outperform the broad market averages, though its low two-star rating suggests they think there are better places for your money.

Add L&L Energy to your watchlist, and see whether long investors are simply acting like canaries in a coal mine.

Not from concentrate
Organic light emitting diode specialist Universal Display took a dive for no particular reason yesterday, though its stock has risen almost 70% since the beginning of the year. The OLED maker licenses its technologies to display-screen manufacturers for use in cell phones, MP3 players, laptop computers, and televisions. While large-screen TV sales haven't been too robust, mobile computing and communications are driving cell phone and computer sales, suggesting that Universal Display's business won't dry up any time soon.

CAPS member MattGontovnick is probably not all that concerned about the pullback in price, given Universal's commitment to R&D spending. That seems to match the sentiment of our overall investor community, where 95% of those rating the OLED king believe it will be able to beat the Street.

Tell us in the comments section below or on the Universal Display CAPS page whether this passes your screen for a rebound.

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.

Editor's Note: An earlier version of this article incorrectly stated that SinoCoking & Coke Chemicals was recently accused of fraud. The Fool regrets the error.

Microsoft is a Motley Fool Inside Value recommendation. Universal Display is a Motley Fool Rule Breakers choice. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft. Motley Fool Alpha owns shares of Microsoft. 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 (8) | Recommend This Article (8)

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 April 13, 2011, at 8:51 PM, aza400 wrote:

    The stock didnt fall from grace the whole market took a hit it was broad based?? So the stock has pulled back 20% from its high all high flyers do this its healthy. To be honest I would be surprised to see a bigger pull back. Your article is bullish for the stock.

  • Report this Comment On April 14, 2011, at 7:51 AM, BestAt10orLess wrote:

    Rich, why do you and so many others insist on calling LLEN a chinese company? They ar 100% american owned. Based in Seattle Wasington! Suggestion, do a story on the huge steps this company has taken in the last few months to prove they are for real, like opening up opperations to investor inspections. This is a stock that could make people rich. Research it, and help get the truth out to the people. ( yes, I'm long in it )

  • Report this Comment On April 14, 2011, at 11:16 AM, TMFCop wrote:

    BestAt10orLess,

    Because it's operations are wholly in China and its whole history has been based in and around China. The only thing U.S. about it is its Seattle office as the management is Chinese too.

    In fact, I'm not even sure why it thinks they can do a better job of managing their operations from a different country than if they headquartered it locally.

    Rich

  • Report this Comment On April 14, 2011, at 4:30 PM, TSIF wrote:

    Rich, FYI, on my pitch on VHC, if you actually read it, you will note that I indictated that my CALL went in OPPOSITE of my opinion.

    "OOps, I thought i was being more careful. My third wrong way thumb in the last two weeks. I guess I need to stop multi-tasking."

    When you make an average of 100 calls a month it's easy to set one into motion in the wrong direction, which I seem to do on about half a percent of my calls. Fortunately, it's a little harder to do one backwards in real life and correction can be immediate, not seven days later per the CAPS rules.

    Sometimes I get out of them, and sometimes I don't, but I always pitch them to explain that I GOOFED. So my pitch and my opinion on VHC was negative.

    P.S. If you like some players pitches well enough to quote in your articles, I would think that your rec'ing the pitch would be fair as we rec your articles.

    Fool on!

    TSIF

  • Report this Comment On April 15, 2011, at 9:01 AM, maxlogan wrote:

    Rich,

    FYI, LLEN's management is comprised of US Citizens that are residents of the US and subject to US laws. Definitely a differentiator among other companies.

  • Report this Comment On April 17, 2011, at 4:14 AM, TMFCop wrote:

    TSIF,

    Now I see what you're saying there. Good point. And I like the idea of the recs. I think that's a worthy argument in most cases. Thanks!

    maxlogan,

    While true, I don't think it changes LLEN being deemed a "Chinese company." However, I do see they invested in a Colorado coal mine in January. I will agree, though, it is different!

    Rich

  • Report this Comment On April 18, 2011, at 12:53 PM, Metaworld wrote:

    Regarding PANL: I am not a sophisticated investor but couldn't the completion of its public offering of 5,750,000 shares of its common stock at $46.00 per share have some effect from a dilution perspective?

  • Report this Comment On April 19, 2011, at 10:57 AM, TSIF wrote:

    Hi Rich, I didn't expect you to "check back in". You produce a lot of articles, and I know it's hard to respond. I also agree with the "most cases". Thanks. Fool On!

    VHC up 12% already today...looks like you may need another article on this one. Volitile little bugger. No news again today.

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