Why Did My Stock Just Die?

The markets have rallied again, rising two days in a row, but your stock went and took a big 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)

Yesterday's Change

Netflix (Nasdaq: NFLX  )

**

(18.9%)

American Superconductor (Nasdaq: AMSC  )

**

(15.1%)

Aixtron (Nasdaq: AIXG  )

***

(13.6%)

With the Dow Jones Industrial Average (INDEX: ^DJI) rising 186 points yesterday, or 1.7%, stocks that moved in the opposite direction are pretty big deals.

Streaming down the drain
With all the talk about the death of the DVD, Netflix might have just hastened its demise. It's clear now that the movie rental king's 60% price hike two months ago was highly unpopular. No doubt it expected to lose a few customers, but not a million of 'em. July's earnings report targeted 25 million subscribers; yesterday's announcement says that number has dropped to 24 million.

Politicians are often admonished not to believe their own press releases, and it's advice that Netflix should have heeded. While many analysts cheered the price hike and the bifurcation of its revenue streams between DVD-only and streaming, the movie house should have paid closer attention to the reality of the day. With competitive outlets for viewing entertainment growing, Netflix just isn't worth that much more to its subscribers.

It's notable that on a day Netflix lost almost a fifth of its value, Coinstar (Nasdaq: CSTR  ) gained 7%. Even NCR, which has fought to retain its right to operate Blockbuster Express kiosks, rose 3% on the day. Maybe Netflix didn't think subscribers would willingly switch to other movie outlets, but alternatives like Hulu and iTunes are offering more and more content. Netflix had such an excessively swollen opinion of itself that it thought it could keep subscribers in thrall.

CAPS member EdFromOhio says that despite appearances to the contrary, Netflix's business model isn't all that:

They don't have a unique enough business model to prevent others from cloning their service and undercutting their profits. Plus, they made a major misstep when they stopped the $2 extra per month for DVD plan.

Let us know in the comments section below or on the Netflix CAPS page where you see the movie king going from here.

Short circuit
As I see it, the big problem for American Superconductor isn't that one of its former employees apparently stole company secrets and allegedly sold them to its one-time biggest customer and now-rival. Rather, the real question is what the wind power components maker is going to do for business from here on out.

As has been well reported, earlier this year American Superconductor's top customer, Sinovel, stopped accepting orders, a move that caused its stock to plunge. Since the Chinese company accounted for nearly 80% of its revenues, the complete severing of the relationship seems to doom American Superconductor to a future of irrelevance as far as investors are concerned.

It has a nascent power inverter business that will put it into competition with Satcon Technology (Nasdaq: SATC  ) and Power-One (Nasdaq: PWER  ) , but it hasn't filed financial reports with the SEC in months so we really don't know what its condition is right now. Also, I wouldn't count on American Superconductor prevailing in Chinese courts on the allegations against Sinovel.

While 88% of CAPS members rating American Superconductor believe it will outperform the broad market averages, the low two-star rating they've assigned it suggests they think there are better places for your money. You can add your opinion on the American Superconductor CAPS page and let us know if it will ever find the wind in its sails again.

Going dark
A rising tide may lift all boats, but when the tide runs out it's going to have the opposite effect. Veeco Instruments and much of the light emitting diode market got seasick yesterday after LED specialist Aixtron reduced full year guidance, citing margin pressures and delayed orders.

Aixtron says orders are getting pushed into 2012 and deferring shipments. As one analyst noted, the reduced guidance was akin to eliminating an entire quarter's worth of revenues. Ouch!

LED lighting adoption, which really is the next stage in lighting -- CFLs are more akin to a transition technology -- is accelerating, and falling prices will make it a more widely adopted lighting option in the future, but the immediate effect is a sinking feeling in the sector.

Earlier this summer CAPS member Jeffrey2012 correctly predicted the troubled waters Aixtron was sailing into:

This is a great company since they along with VECO are the main suppliers for LED equipment production. However, they are going to face headwinds that will most certain affect earnings going forward.

First of all, China's market is becoming more saturated with equipment due to the surge in orders because of fears of local government subsidies for the led equipment.

Let us know in the comments section below or on the Aixtron CAPS page whether you think there's a light at the end of the tunnel for LED lighting.

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.

Fool contributor Rich Duprey owns shares in Aixtron but has no position in any of the other stocks mentioned in the article. Click here to see his holdings and a short bio. The Motley Fool owns shares of Power-One. Motley Fool newsletter services have recommended buying shares of Coinstar and Netflix, as well as buying puts in Netflix. 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.


Read/Post Comments (2) | Recommend This Article (4)

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 19, 2011, at 10:05 AM, seabooty wrote:

    One big thing all the talking heads seem to forget. Only the priviledged have DSL internet service. Most people have dial up internet and can't use streaming video.

    In comes Redbox, $1.00 video rentals for the rest of the world. They offer the latest movies at a price no one can resist. Redbox is not going out of business anytime soon. The boxes are being located as fast as they can be built.

    There is a whole world of people who live in areas where there is nothing but dial up or maybe they can get limited wireless connections, but no streaming.

  • Report this Comment On September 19, 2011, at 11:17 AM, NCMichael wrote:

    Seabooty makes a good point. I don't stream over my TV and only rarely bother on the PC. Netflix didn't lose me, I just chose the DVD (Blu-Ray) option alone, but now they've gone and changed the name and will change the web site name for the disk service. It may make more sense from a corporate organizational sense, but from a purely marketing perspective, throwing away a well-known name is just foolish. And not good foolish, like Motley Foolish.

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