Why Did My Stock Just Die?

Down we go again. The markets are reversing course, falling several days in a row now, but your stock is taking an even bigger nosedive. Don't panic, though. 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)

Thursday's Change

LDK Solar (NYSE: LDK  )

**

(23.0%)

Hewlett-Packard (NYSE: HPQ  )

***

(20.0%)

Lihua International (Nasdaq: LIWA  )

**

(12.8%)

The market plunged points 173 yesterday, or 1.6%, but stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
Let me see if I’ve got this right. LDK Solar slashed its revenue guidance by 34%; cut its wafer shipment projections by 21%; took a meat ax to its module shipment forecast, dropping it by nearly two-thirds; and said gross margin would be all but wiped out -- but said it was going to keep producing polysilicon at the same rate while only slightly scaling back cell production? So it can't sell what it has but is going to keep making more of the same? No wonder the market beat up LDK's shares!

The solar shop really didn't give any hint as to why it had to revise its guidance so drastically, though it did mention a dramatic drop in pricing for wafers and modules. Falling prices have been ruining the party for a number of solar companies, including JA Solar (Nasdaq: JASO  ) , which entered into long-term supply agreements suggesting it was trying to protect its downside, and ReneSola (NYSE: SOL  ) , which saw profits plummet 95% from the year-ago period while offering guidance that was well below what Wall Street anticipated.

With over 93% of the more than 1,500 CAPS members rating the solar-wafer maker to outperform the broad market averages, it's apparent they thought it could still shine during this period. Wall Street was less kind, with the majority thinking it would underperform. You can tell us on the LDK Solar CAPS page why you think it will or will not get past this dark cloud hanging over it.

Wait a cotton-pickin' minute
When your sales outlets want a refund, you know you've got problems. Consumer electronics superstore Best Buy (NYSE: BBY  ) recently told Hewlett-Packard it couldn't move any of its much-maligned TouchPads tablet computers and wanted to return them. Yet as bad as that is, there's more to cause investors to worry about its future.

In quick succession, HP announced it was dropping the TouchPad, wants to spin off the entire PC division, would discontinue its WebOS software, and would stop making WebOS hardware like smartphones and tablets. Tell me again why HP paid $2 billion for Palm? On top of that, it made a $10 billion bid for enterprise-level software company Autonomy.

The Autonomy bid is no surprise, considering CEO Leo Apotheker's software background and a penchant for growth through acquisition. But the hardware sale is a bit of an eyebrow-archer even though rumors have been circulating for a while that he wanted to unload the PC business. After all, Apotheker was only recently putting WebOS on all its computers and smartphones. No one doubted it makes sense to pursue the margin-rich business of software as it battles archrival Oracle (Nasdaq: ORCL  ) , but to the exclusion of all else?

Still, CAPS member buckazoid thinks Apotheker is making the right moves, concentrating on those areas that will make HP a lot of profit.

While I understand HP is in a tough spot, I think getting rid of this low-margin business is the right decision. Does this mean HP has a bright, long-term future ahead? Not necessarily. But at a P/E ratio of 6, and assuming that a buyer for the PC business can be found (remember, Siemens and IBM have done the same thing), I remain optimistic in the short to medium term, if only for a rebound.

Is HP a value trap or can it pull its act together? Add Hewlett-Packard to the Fools' new My Watchlist feature, which lets you get up-to-date news and analysis as they unfold.

Going with the flow
Chinese copper-products maker Lihua International carries a reputation covered in a patina of doubt. Earlier this month it attempted to push back against a rising tide of criticism over its alleged poor corporate governance practices by assisting an "investigation" into the charges leveled against it, supposedly conducted by a disinterested third party, China 360. Now a series of articles on Seeking Alpha cast new doubt on just how disinterested that third party really is.

Several admitted short-sellers of Lihua stock note China 360 is really a venture of three firms that have made a specialty out of pushing Chinese small-cap RTO stocks, many of which were later found to be frauds. Despite the assurances of impartiality, the new reports cast doubt on those claims. Showing just how fragile the trust is in these foreign companies, the market sold off Lihua's stock even though no new charges have been leveled against it.

Although 83% of the CAPS All-Stars rating Lihua think it can outperform the market indexes, the low two-star rating the stock's been assigned suggests they think there are better places for your money. Tell us on the Lihua International CAPS page whether you think that where there's smoke there's fire.

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 Oracle and Best Buy. Motley Fool newsletter services have recommended buying shares of Best Buy. 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 owns shares of Best Buy but does not have a financial position in any of the other stocks mentioned in the article. You can see his holdings here.


Read/Post Comments (2) | Recommend This Article (1)

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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 23, 2011, at 6:43 AM, SuperEconomist wrote:

    Oil prices affect solar.

  • Report this Comment On August 23, 2011, at 9:48 AM, bgreaker wrote:

    As far as LIWA is concerned, there may be distrust for Chinese companies and their auditors, but I see the CEO continuing to buy thousands of shares of stock for himself with insiders owning 16+ million shares, copper is an essential commodity needed for construction projects in China (and they are on a tear), and the people complaining are short sellers trying to drive the price down for their own gain. Did I mention they have an 8.9% profit, have an estimated growth of 48% next quarter, 38.6% this year and 32.5% next year and beat estimated earnings by 11.6%?

    Guess who I'm betting on?

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