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)

Wednesday's Change

STEC (Nasdaq: STEC  ) *** (19.7%)
Rentech (NYSE: RTK  ) *** (14.2%)
Wave Systems (Nasdaq: WAVX  ) * (13.2%)

The commodities correction is apparently upon us, and with the market having ridden the bubble higher, it's now stumbling alongside them on the way down. Stocks tumbled 130 points yesterday, or 1%, so stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
When it rains it pours for solid-state drive maker STEC. First it had the inventory issue with major customer EMC (Nasdaq: EMC  ) , and after that seemed to be on its way to working itself out, the earthquake and tsunami hit Japan, causing supply chain disruptions. Despite a quarter that saw it beat easy comparisons to last year, as well as trumping analyst expectations, earnings fell short and management had to rein in expectations for the current quarter. It might even be a situation that extends over several quarters.

Cheap valuations in the sector are leading to some M&A activity and speculation. SMART Modular Technologies (Nasdaq: SMOD  ) was offered a buyout by private equity, and with STEC's new lower price, it's possible that Western Digital (NYSE: WDC  ) might want to shore up any deficiencies in its business with a bid for its rival.

STEC bulls rightly remain steadfast in their belief in its technology's superior performance. However, one misfortune after another seems to be STEC's lot, and CAPS member jcreamer007 thinks sooner rather than later someone will pick this company up:

STEC's enterprise SSDs are being adopted by computer server providers in a geometric progression. Currently, most computer server providers are using commodity SSDs for their servers. As the technology improves, STEC will penetrate this market which will allow STEC to capture a majority of the enterprise SSD market. One would expect that STEC would sell out to IBM, EMC or HP long before STEC becomes dominant in the enterprise SSD market, though.

You can add STEC to your watchlist and let us know on the STEC CAPS page whether a buyout or broad adoption of its technology will come first.

Cracks in the foundation
Another company suffering from messed-up expectations is alternative fuels maker Rentech, which had investors hoping a Department of Energy loan program would fund a new project to develop a biomass gasifier plant. Problem is, DOE doesn't have enough funds to finance all the applications that have been pouring in, so the project's been placed on hold. While it's not Rentech's only project, it was one that was going to make a mark. Now it's just going to leave a bad taste in investors' mouths.

Other companies are making moves in biomass alt fuels, like A-Power Energy Generation Systems (Nasdaq: APWR  ) , which recently signed a couple of contracts to develop biomass power plants, but it's suffering wind burn from its main wind power business. And with oil prices in a rout, alt fuel will find itself stuck in a morass.

CAPS member mspracticality remains hopeful the contracts Rentech already has under its belt will sustain it:

US Air Force has already approved Rentech's jet fuel and several airlines in Los Angeles and Houston have committed to using their bio-diesel when it becomes available. A potential takeover candidate but future looks bright as a stand alone. I am accumulating and holding.

Add the stock to the Fool's free portfolio tracker to see whether Rentech can recover or if it's living on borrowed time.

Not taking flight
It might be tempting to wave bye-bye to computer security software specialist Wave Systems after its disappointing quarter, but that seems like it would be a mistake. While its $1.6 million Defense Department contract ended in February, the company is working on building a product portfolio and sales pipeline that will attract a global, enterprise-level clientele.

The market might have been disappointed with results, despite the 27% increase in revenues, because losses widened. Yet that was a result of spending more on marketing its solutions, and perhaps the payoff has already begun, as it received an $8 million payment from a global automaker for orders placed in the fourth quarter.

CAPS member shoebsky sees businesses and the military needing Wave's technology, but the CAPS community is almost evenly split on whether it will grow enough to be able to beat the market averages. Secure your opinion on the Wave Systems CAPS page and let us know if it will be swamped with business.

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.

The Fool owns shares of EMC and Western Digital. 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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