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

American Superconductor (Nasdaq: AMSC  ) ** (24.1%)
Star Scientific (Nasdaq: CIGX  ) ** (19.0%)
Jos. A. Bank Clothiers (Nasdaq: JOSB  ) ** (13.3%)

One day after stocks soared 128 points, the market turned around yesterday and fell more than twice that amount, 280 points, or 2.2%, as economic data confirmed what people already knew: The economy remains in a dire condition. So stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
Continued fallout from its biggest customer, Sinovel, wreaked havoc on the stock of wind power components maker American Superconductor. Sinovel refused contracted shipments. Since American Superconductor had apparently already booked some of that revenue, it announced yesterday it was going to need more time to file its financial statements to reflect the new numbers.

It's also in the process of acquiring The Switch, a maker of power converters, but is in need of financing to help it close the deal. If that happens, it will put it in direct competition with Satcon Technology (Nasdaq: SATC  ) and Power-One (Nasdaq: PWER  ) . While that might give it some diversity, those businesses are suffering on their own as well. And A-Power Energy Generation Systems (Nasdaq: APWR  ) is, well, sucking wind, too. Opening up a new line of attack in a niche already flailing doesn't bode well for American Superconductor.

There's a lot of belief in the CAPS community that the hits have been too hard on the components maker. CAPS member sudspark is looking for recovery later this year, while its smart-grid investments have others hopeful it will be able to get past this reliance upon a single customer.

Of course, investors have had ample warning that just such a stumble could decimate American Superconductor. Long before Barron's highlighted the risks last December, Fool's were advised to beware the weight Sinovel brought to bear on its operations. Keep an eye on American Superconductor by adding its stock to your free, Foolish portfolio tracker, where all the news and analysis are brought together in one place.

Up in smoke
While there was no specific news to send Star Scientific to such depths, one analyst at optionMonster had expected the decline because certain option contract trades looked very bearish. There was at least one investor looking for a big price drop and he apparently got it.

The stock has been moving higher of late, enjoying an earnings report that showed growing sales and an expansion of a study to include more patients to determine whether Star's anatabine chemical -- a naturally occurring chemical in tobacco -- can treat Alzheimer's disease.

CAPS member DBManFool recognizes the risks that abound in an investment in Star Scientific, but overall he feels it has a chance to double or triple in value, particularly if its patent infringement appeal against Reynolds American goes through:

If either story bursts badly, the pps collapse that the bears foresee will be real. So if you buy the lottery tickets, also buy puts. You don't really know where the pps will go, but it seems obvious to me that one way or the other, that over the course of the next few months and very possibly weeks or even days, the pps is going to diverge drastically from the $5 mark where it currently teeters on an apex.

Follow Star Scientific's progress by adding the stock to the Fool's free portfolio tracker.

A cloudy forecast
Considering I had just bought a suit at Jos. A. Bank Clothiers this past weekend and found the store doing a brisk business, I was a little surprised at the market's reaction to its earnings release. What seemed to shake investors were sales and profits coming up short of expectations.

I've been a fan of the suit maker's clothes for many years, starting after an oil company executive I knew said you couldn't beat the price, quality, and classic style of its offerings. Yet if you've listened to the radio recently, you know Jos. A. Bank is in a fairly promotional period. My suit was discounted 70%; a new promotion has one of its "executive" suits going for $177, with a second one for only $77. They're not giving away their clothes, but offering regularly discounted merchandise will work its way into the financial statements.

But the sell-off was overdone. Just look at the tailor's margins: Gross, operating, and net have all been steadily growing quarter after quarter -- even the latest one. Men's Wearhouse (NYSE: MW  ) can't say the same thing.

While the economic numbers that came out yesterday might cause CAPS member DavidXW to have to wait a little longer for his thesis to work out, it remains a solid case:

This clothing store chain has been doing well even when the economy was tough. I think it will be quite awhile before the economy is doing so well that people will look for somewhere more expensive to shop, but I think business will pick up even more as the economy improves moderately.

If the recent volatility is too much for you, add Jos. A. Bank's stock to your watchlist and track its progress from there.

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 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 Motley Fool owns shares of Power-One. 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. The Motley Fool has a disclosure policy.

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.


Read/Post Comments (4) | Recommend This Article (5)

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 June 02, 2011, at 3:06 PM, PhulishMortal wrote:

    I have owned JOSB for years now and have been as pleased with the stock as I am with their merchandise. (Well, most of it, anyway. There was that one pair of slacks . . . but, I digress.)

    They still are performing well. I see the last couple of days as a buying opportunity.

  • Report this Comment On June 02, 2011, at 4:50 PM, ClevelOfficer wrote:

    AMSC:

    1. the current stock price seems to reflect reversal of all (100%) revenue from this customer

    (customer was 65-70% of revenue, stock price at $8 has dropped about 70%)

    2. the undelivered parts seem also to be valued at zero at the current stock price. However, the parts do have some value that is greater than zero.

    3. Financially, they have plenty of cash and no debt (so they have operated very conservatively in regard to debt/leverage).

    4. Even with plenty of cash, they have been prudent to cutback on expenses to better align with revenues. Perhaps the staff cutbacks are of administrative and other less technical staff having less direct impact on development/design etc of technology.

    Some investors may have entered the stock now seeing it as a value play. By the way the Book Value per Yahoo is $9.86 per share. Yes, that is out-dated and could be $7.50 or so after write-offs.

    There is still potential for business (a) in China (b) other countries (c) Wind products (d) Superconductor wire products (e) other countries and other products

    As I wrote earlier today on the Insider Buying article, perhaps AMSC could be taken private.

  • Report this Comment On June 02, 2011, at 5:24 PM, buffalonate wrote:

    I bought today. I have been waiting for an entry point and I finally got it. I am going to sell this stock 2 days after never.

  • Report this Comment On June 03, 2011, at 5:30 PM, DavidXW wrote:

    I wish I knew what if anything the tiny increase in same store sales means.

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