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

MIPS Technologies (Nasdaq: MIPS  ) *** (24.1%)
Broadcom (Nasdaq: BRCM  ) *** (12.3%)
Zix (Nasdaq: ZIXI  ) *** (9.4%)

The bulls are back and continue to run higher on the big earnings reports companies are turning in. Stocks jumped another 95 points yesterday, or almost 1%. So stocks that went down by large percentages are pretty big deals.

The devil's in the details
Like fellow Fool contributor Tim Beyers, I was hip to chip designer MIPS Technology being a market beater. It was scoring contract wins for mobile computing devices using Google's (Nasdaq: GOOG  ) Android platform, and Sigma Designs  (Nasdaq: SIGM  ) was betting big on the MIPS processor design. Stealing market share from ARM Holdings (Nasdaq: ARMH  ) was just ahead.

Although investors got spooked in the second quarter as revenues dipped below what was expected, management soothed ruffled feathers by telling investors to wait and see what the next quarter would bring. It was just a timing issue, they said, and the current quarter will recognize the deals it signed previously. Well, the current quarter came and went and MIPS Technologies disappointed in a big way. Not only did it miss on revenues and earnings, but also guidance for next quarter was reduced and royalty revenues are expected to fall 8% to 10% year over year.

Once again, management is telling the market not to worry, that "it's a marathon, not a sprint." Unfortunately, it seems MIPS executives like to over-promise and under-deliver, the exact opposite of what investors want in their companies.

If I'm willing to cut the chip designer any slack at all it is because its biggest customer, Broadcom, reported a disappointing quarter, too. The combination of the two announcements probably fed into each other and drove their share prices down.

CAPS members like All-Star CH37 see the steep plunge as an opportunity and are eager to buy MIPS on the dip. I'm not so sure. If Broadcom is also suggesting a slowdown, then it might be a worrisome trend developing.

Similarly, CAPS member cz4ever agrees with MIPS management that this is a long-term play, and says Broadcom will still experience growth because mobile communications is just hitting its stride:

Their latest generations of chips for both the mobile (smartphone) and ethernet switch (so-called "top of rack" routers) markets seem to be winners. High demand. Reasonable price point after weak past 12 months -- Mr. Market is offering them up at a modest discount.

You can add MIPS to your watchlist and let us know on the Broadcom CAPS page whether mobile commuting will still let it move forward.

Cracks in the foundation
For email encryption specialist Zix, although its guidance for next quarter was below what analysts were hoping for, its full-year guidance was right in line, so it seems the near-10% chunk the market took from its valuation yesterday is rather shortsighted. It seems as though it ought to be just a temporary dip.

Moreover, when there are security breaches such as the one that occurred with the 77 million Sony PlayStation accounts, it serves to underscore the need for heightened protection.

While almost 30% of the CAPS members rating Zix think it won't be able to decipher the code to beat the broad market indexes, steelgreg thinks its growing client list will help boost its prospects:

Security is a large issue and getting larger. ZIXI is currently working with some government agencies and its involvement will most likely grow

Add Zix to your watchlist and see whether the stock can unlock the secrets to higher profits.

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.

Google is a Motley Fool Inside Value recommendation and a Motley Fool Rule Breakers pick. The Fool owns shares of Google. 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 (5) | Recommend This Article (7)

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 28, 2011, at 3:05 PM, DanZosh wrote:

    BRCM, wow, it's ridiculously hard hit. Incredible that a company can destroy all it's records and then get sliced like that. The sector is getting in the throws of a steep correction and could be a good time to get in. Yes, maybe people will keep buying smartphones, notepads, flat screens, etc., but wait, maybe that's all just a myth, let's go back to the old days when we had to monitor our long distance phone bills, maybe the kids will talk to one another again.

  • Report this Comment On April 28, 2011, at 11:47 PM, MarketIntell wrote:

    Why is ZIXI listed in the table in this article as a 1 star CAPS rating, when it's actually a 3 star? I've grown accustomed to ZIXI getting beaten down by irrational short attacks, but the facts are clear in this case - it's been a 3 or 4 star rating for months, and not lower than 2 in the last year. BRCM is listed as a 4 star, when it's been a consistent 3 star for the last year. Come on guys. Should I be more disturbed that this content is published with wild inaccuracies or that no one else notices the blatant mistakes for many hours after it's published?

  • Report this Comment On May 01, 2011, at 7:45 AM, MarketIntell wrote:

    Could someone please correct this article's inaccuracies? - see my comment above.

  • Report this Comment On May 02, 2011, at 11:59 AM, TMFCop wrote:

    MarketIntell,

    My apologies for not picking up on this sooner. It was an oversight on my part and your note should have been seen sooner by me (aside from my not having gotten the CAPS ratings wrong to begin with).

    We'll be getting the correct ratings posted forthwith, and thanks very much for your diligence and holding my feet to the fire on accuracy.

    Cheers,

    Rich

  • Report this Comment On May 03, 2011, at 8:56 AM, MarketIntell wrote:

    Rich,

    Thank you for your response and update.

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