Why Did My Stock Just Die?

It's a rally! The stock market's had two straight days of better-than-100-point gains, but your stock just took a nosedive. 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)

Friday's Change

Dillard's (NYSE: DDS  ) * (18.2%)
AsiaInfo Holdings (Nasdaq: ASIA  ) ** (13.7%)
ReneSola (NYSE: SOL  ) **** (12.0%)

The market jumped 125 points Friday, or 1%, making it just 175 points down for the week. Not a bad recovery seeing how bleak things looked; stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
There didn't seem to be much rhyme or reason behind July's retail sales numbers. With consumer confidence at its lowest level in 30 years, unemployment still rampant, and housing decimated, things seemed to jibe with midtier retailer J.C. Penney's (NYSE: JCP  ) weak outlook that overcame an otherwise strong quarter.

What doesn't mesh are the results from similarly situated Kohl's (NYSE: KSS  ) , which reported higher profit margins and raised its guidance for the year. That's what both Macy's and Nordstrom did, too, but being a "luxury" name has proven helpful during the downturn.

Although Penney and Dillard's customers would seem to have more exposure to lack of confidence in the future than the well-heeled customers shopping Nordstrom, Dillard's reported profits that doubled year over year, though it widely missed Wall Street's mark and the markets thought fit to sell it off.

Some analysts have suggested the department store chain might be worth a try for risk-tolerant investors, but CAPS member pchop123 says Dillard's is a falling knife that can still cut you on the way down. The broader CAPS community seems to agree, as only 38% of the more than 380 members rating the retailer think it can outperform the broad market averages. You can tell us on the Dillard's CAPS page, or in the comments section below, if you agree.

Dial up, anyone?
With no company-specific news to account for AsiaInfo's Friday plunge, investors might want to look into whether this provides an opportunity to buy into China's leading telecom IT software vendor. With the stock more than 50% below its 52-week high as investors wait to see how it digests rival Linkage, which it finished acquiring just over a year ago, the IT specialist could be a good long-term play.

AsiaInfo services all three of China's big telecoms, but China Mobile (NYSE: CHL  ) accounted for 61% of its revenues in 2010. Its market share in the areas of billing and customer-relation management tops 50% in China and is second only to Amdocs globally. Growth in the telecom market is expected to surge in the coming years and AsiaInfo will benefit from the convergence with expected cable bundling offerings.

Highly rated CAPS All-Star TSIF points out that AsiaInfo isn't some fly-by-night operation, but might be a victim of circumstance more than anything else:

Although AsiaInfo is a China and the markets are labeling most of the China stocks as dangerous, it has been servicing the China information technology market for over 20 years. It started on the US boards at a really bad time, opening at $43 per share in 2000 and dropping to $3.19 by October of 2002. Since then it's done a pretty good impression of US tech markets.

I agree that AsiaInfo looks like a good opportunity and I have rated it to outperform the market indexes. Join me on the AsiaInfo CAPS page and give us your view while following its progress by adding it to the Fool's free portfolio tracker.

Not so hot
One day after soaring 23%, ReneSola gave back a good chunk of its gains. Still, the stock is more than three-quarters off the price it was trading at at its peak, so the market isn't putting much stock into small rallies like it just enjoyed. No doubt that's due in large part to second-quarter profits falling 95% from the year-ago period and revenue guidance for the third quarter coming in well below what analysts anticipated (it also pulled its full-year forecasts).

Like JA Solar (Nasdaq: JASO  ) and others in the space, the solar specialist is reeling from falling prices for wafers and modules. Capacity expansion is still under way in China even as Europe's solar market is virtually dead. The U.S. might be a bright spot, but subsidies for the industry are going to come under closer scrutiny in these lean budget times.

CAPS member Seanickson thinks the market has priced ReneSola as if it's going to roll over, a scenario he doesn't see playing out:

Based on the price, expectations are remarkably low. Very low p/b and p/e, perhaps a bit of a fraud discount. There will be consolidation and margin contraction in the industry but the current price isnt justified.

With 98% of the CAPS All-Star members who have rated the solar shop marking it to outperform the market, it seems they're fairly enthusiastic, too. You can shine a light on your own opinion of its growth potential by adding it to the ReneSola CAPS page.

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 Motley Fool owns shares of China Mobile. Motley Fool newsletter services have recommended buying shares of China Mobile. 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 (2) | Recommend This Article (2)

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 August 17, 2011, at 2:09 PM, egan62 wrote:

    Dillard's:

    "The broader CAPS community seems to agree, as only 38% of the more than 380 members rating the retailer think it can outperform the broad market averages".

    This insightful CAPS community also blessed Dillard's with a one star in June 2010 with only 32% rating at outperform. What did the stock do? It rose 240% before getting hammered last week by over ambitious analyst. The stock will rebound to the low 60's.

  • Report this Comment On August 17, 2011, at 5:13 PM, w6459 wrote:

    Asiainfo:

    A huge short interest has built up in this stock in recent months after fraud rumors circulated in the spring. Latest quarter had no big upside surprise so maybe the shorts continue to pile in. I fear that somebody will then Muddy the Waters with a "research" report formally accusing the company of funny numbers, which recently happened to CIS. That's seems to be how these hedge funds operate and make their money...

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