Why Did My Stock Just Die?

Your stock just took a nosedive -- but don't worry yet. First, let's see whether it had good reason to fall. After all, 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)

Friday's Change

Orexigen Therapeutics (Nasdaq: OREX  )

**

(33.3%)

Zhongpin (Nasdaq: HOGS  )

***

(15.4%)

Newell Rubbermaid (NYSE: NWL  )

****

(11.8%)

The economic data released last week confirmed what many people already knew: The economy remains in a dire condition. The markets fell more than 97 points, or almost 1%, as fewer jobs are being created and unemployment is ticking higher again, although the service sector is showing some strength. So stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
You can't say you weren't warned. The Fool's Brian Orelli suggested that by holding off the "big announcement" about its drug Contrave till Friday, drug developer Orexigen Therapeutics could avoid discussing at its shareholder meeting the negative implications surrounding the anti-obesity drug.

Investors had been hoping against hope that Orexigen's news would be of the good variety, allowing it to succeed where Arena Pharmaceuticals (Nasdaq: ARNA  ) and VIVUS (Nasdaq: VVUS  ) had failed, but in the end Orexigen said it wasn't just a hurdle the FDA had placed before it, but rather a mountain it had to climb. Essentially, the regulatory agency wants Orexigen to run a clinical trial with as many as 100,000 patients to prove that the drug doesn't increase cardiovascular risk. That's just about as financially and feasibly impossible as it can get. The FDA should have just come out and said, "No way, no how, are we going to approve your drug."

Orexigen intends to appeal, but there's little need for investors to hang around and wait -- unless, like CAPS biotech guru zzlangerhans, you smell opportunity in the huge selloff.

Ultimately, Orexigen's long-term prospects hinge on conservation of that sizable chunk of cash and development of new pipeline candidates that do not contain buproprion. This company has shown substantial resilience in the face of several setbacks and I don't see this as the beginning of their end. I'll be watching this stock very closely for stabilization, and when I see it I'll likely make a sizable GBMB purchase in order to benefit from that first spike of resurgent optimism.

Keep an eye on Orexigen's future by adding its stock to the Fool's free portfolio tracker, where all the Fool's news and analysis comes together in one place.

Going hog wild
There was no real news to account for the drop in Zhongpin's stock on Friday, though some analysis showed that options traders were buying puts in heavy volumes, suggesting that they were expecting the stock to drop. Inflation has been eating away all the fat from Chinese stocks. Labor costs are rising, which has caused some manufacturers, such as handbag maker Coach (NYSE: COH  ) , to start looking for other low-wage countries such as Vietnam to locate their factories in.

China's monetary policy and a voracious appetite for oil have caused commodity prices to rise just as its economy is slowing. Manufacturing growth in the country experienced its slowest expansion rate in nine months, and the country is dealing with one of its worst droughts ever.

Zhongpin, though, outlined over the weekend why it's typically more profitable than its rivals, pointing to an "industrial cluster approach" that it duplicates in each of its markets. Whether that's a sufficient explanation for the dichotomy remains to be seen, but 97% of the nearly 1,000 CAPS members rating the pork processor give it the benefit of the doubt and believe it will outperform the broad market averages.

The stock is down 44% from its recent highs, and you can find out whether the markets will ever pig out again on Zhongpin by adding the stock to the Fool's free portfolio tracker.

A cloudy forecast
Considering the big decline in the manufacturing index last month, it's probably not too surprising that Newell Rubbermaid found it necessary to cut its full-year profit forecasts as customers reined in their spending. The Institute for Supply Management's purchasing managers index fell to 53.5 sequentially. That's still showing economic expansion, as anything above 50 represents an expanding economy, but it's well below the 60.4 gauged in April and under even analysts' lowered expectations.

Month-to-month fluctuations are to be expected, but unemployment is rising, new jobs are not being created, and other manufacturers, such as National Instruments (Nasdaq: NATI  ) , are expecting "follow-through impact" that causes them to offer cautious guidance for the second quarter.

Wall Street has remained optimistically bullish about Newell's prospects, and the CAPS community is fairly upbeat, too, with 92% of those rating the stock expecting it to beat the broad market averages.

But if the recent volatility is too much for you, add Newell Rubbermaid's stock to your watchlist and track its progress from there.

Ready for a resurrection
Just because your stock has taken a beating, that 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. With CAPS, you can decide for yourself whether your stock ready to come back from the dead.

The Motley Fool owns shares of Coach. Motley Fool newsletter services have recommended buying shares of Coach and National Instruments. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in the article. You can see his holdings. The Motley Fool has a disclosure policy.


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