Why Did My Stock Just Die?

The markets fell big, but your stock took an even bigger a 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)

Friday's Change

H&R Block (NYSE: HRB  )

**

(11.7%)

Silvercorp Metals (NYSE: SVM  )

****

(10.5%)

Talbots (NYSE: TLB  )

*

(10.1%)

With the Dow Jones Industrial Average (INDEX: ^DJI) plummeting 253 points Friday, or 2.2%, as the employment picture remains exceptionally weak, stocks that went down harder are pretty big deals.

Is this what an audit feels like?
Tax-prep specialist H&R Block got put through the wringer because it posted earnings worse than anticipated on a charge taken for getting rid of its consulting subsidiary RSM McGladrey. At the same time, it will also be facing antitrust hearings over its acquisition of 2S Holdings, the maker of the DIY TaxAct tax-prep software.

It seems ludicrous to me that the Justice Department would oppose H&R's acquisition of TaxAct. Intuit (Nasdaq: INTU  ) is the dominant player in the tax-prep software arena, and H&R's own digital business severely lags. You'd think that after rival Jackson Hewitt declared bankruptcy, regulators would realize that the business is sickly. Justice's reasoning that the acquisition will reduce competition and raise prices seems specious. Heck, even Intuit reported an adjusted loss of $0.11 per share, albeit during its seasonally slow time of the year.

Unless Justice wants to see more troubled businesses go under, it must understand that consolidation is a necessary component of rebirth and that H&R Block's offering of a strong software alternative would actually foster competition.

Highly rated CAPS All-Star TSIF points out that H&R Block's business cycle is a forever repeating one of boom and bust, feasting through one big quarter, followed by three quarters of famine. Its only real avenue of growth is through acquisitions, which is why the TaxAct buy is key: "I thought rival Jackson Hewitt going bankrupt might help them, but the fact remains that customers of walk-in services for taxes continue and will continue to decline as online, free, and computer software programs continue to grow."

Almost one-third of the CAPS members rating H&R Block think it's going to have a difficult time growing. Add H&R Block to the Fool's My Watchlist feature if you agree that it will be a taxing effort.

Tarnish on silver's shine
It's not so surprising that yet another Chinese small cap stands accused of being a fraud. What is startling is that the target is silver miner Silvercorp Metals -- and that the company unveiled the accusations itself. Regardless of where the allegation came from, investors weren't waiting around and bolted for the door.

Silvercorp, which operates four silver mines in China, plummeted after the company revealed that it was forwarded an anonymous letter to the Ontario Securities Commission saying it was operating a $1.3 billion fraud. Not only that, but the letter writer also announced that he had taken a large short position in the stock and would be letting the world know his findings through Internet postings. An interesting campaign, to say the least.

The silver miner pointed out that short positions in its stock had swelled to 23 million shares over the past two months but vigorously denied the accusations against it. More companies like Orient Paper and Lihua International (Nasdaq: LIWA  ) have pushed back hard against charges of fraud. Of course, sometimes it will just be bluster -- the thinking is, the best defense is a good offense -- but Silvercorp chose to reveal the charges itself in a 95-page press release and point-by-point challenged their central thesis.

We don't know what else the short seller may say about Silvercorp or what Internet revelations may follow, but analysts have agreed that the silver miner passes muster with them. But CAPS is divided. CAPS All-Star goldminingXpert gives the charges credence, but speedybure has found management very credible: "Silvercorp has been one of the best stories among primary silver producers, mainly due to the strong management team who have a very keen eye for high quality properties with plenty of exploration upside which they have illustrated over the years. I consider Silvercorp one of the best explorers among current producers."

Let us know on the Silvercorp Metals CAPS page whether you agree that this is just another Chinese small-cap stock scam.

Threadbare results
Women's apparel-store chain Talbots is trying to shed its tweedy image but has had to defend itself against private-equity firms wanting a say in how its business is run. It adopted a poison pill defense to allow management to remain entrenched, which might not be what the company needs at this time.

Analysts at Wedbush Morgan downgraded the company the other day, as a bleak economic picture suggests that consumers will not be as willing as they have been in opening their purses. The entire CAPS Women's Apparel sector fell 3% on Friday as a result, with only Liz Claiborne (NYSE: LIZ  ) and Bon Ton Stores bucking the trend.

Only 46% of those rating the retailer think it can outperform the broad market averages. Let us know in the comments section below or on the Talbots CAPS page whether you think this retailer can extricate itself from the clutches of despair.

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. You can decide for yourself whether it's ready to come back from the dead.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (3)

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 September 06, 2011, at 7:00 PM, mihrtrn wrote:

    One of the FALSE ACCUSATIONS was cash being overstated. SVM posted their bank statements. In my opinion, that discredited ALL of the allegations. however, SVM's excellent Sr. Mgmt. equally disputed the other false allegations. Even without that, how could anybody give credibility to a letter signed "anonymous". Finally, goldminingexpert should change his name on the Fool site to Swiss Cheese based on his

    FALSE ACCUSATIONS against GPL in a recent article on Seeking Alpha which had to be retracted after Chris from Motley Fool schooled him.

    http://www.fool.com/investing/general/2011/08/18/exclusive-s...

  • Report this Comment On September 07, 2011, at 6:38 AM, mihrtrn wrote:

    I would like to see Goldminingxpert's comments regarding SVM's over 90 page rebuttal to the false accusations. I'm most interested in the FALSE ACCUSATION by the spineless anonymous letter regarding cash being grossly overstated by SVM. Everything goes through cash and SVM posted their bank statements for the whole world to see. This absolutely destroyed that FALSE ACCUSATION and as far as I'm concerned that letter and the other false accusations have ABSOLUTELY NO CREDIBILITY. Can we get a comment from the expert on cash on this page ????????

  • Report this Comment On September 07, 2011, at 1:08 PM, XMFSinchiruna wrote:
  • Report this Comment On September 07, 2011, at 9:35 PM, jesusfreakinco wrote:

    Rich,

    I don't like the way you sensationalized a false rumor... 2nd class reporting IMO.

    "Let us know on the Silvercorp Metals CAPS page whether you agree that this is just another Chinese small-cap stock scam."

    Innocent until proven guilty, right?

  • Report this Comment On September 08, 2011, at 10:19 AM, TSIF wrote:

    The reporting on Silvercorp was factual and laid out both cases as they appeared at the time. The tag line to the pitch board could perhaps have been worded differently, but by no means was it "sensationalized". One goal of these articles is to get more participation in the STAR ratings and comments and some sort of tag line is appropriate.

    I'm glad Chris was able to respond so quickly and clearly for those following the sector and stock.

    TSIF

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