The markets roared to life yet again, but your stock went and took 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:
CAPS Rating (out of 5)
|Eastman Kodak (NYSE: EK )||*||(26.9%)|
|InterDigital (Nasdaq: IDCC )||****||(14.3%)|
|Entree Gold (NYSE: EGI )||***||(12.2%)|
With the Dow Jones Industrial Average (INDEX: ^DJI) soaring 272 points yesterday, or 2.5%, stocks that went down by even larger percentages are pretty big deals.
Hanging up on growth
This is what happens when your lifeblood is one-time cash infusions: When they dry up, you need to tap your credit line to just get by. Eastman Kodak, which has survived a bit longer than most perhaps because of its former glory, finally succumbed to the ignominy of needing to tap its credit to pay its day-to-day bills.
The business turnaround management has engendered isn't working out quite as planned. The switch to a printer company from a photo one was already fraught with risk since it's not exactly without competition. But Kodak sought to turn on its head the razor-and-blade model Hewlett-Packard (NYSE: HPQ ) and Lexmark use. Rather than virtually giving away its printers and soaking consumers for the ink, Kodak would have its printers be profitable and offer less costly replacement inks.
In theory, the total cost of ownership would be less for the consumer, but a recession might not be the most opportune time to try to change buying habits.
Yet Kodak's situation also shows the punitive effects of Washington's tax policy. Kodak says it really hasn't burned through the $957 million in cash it reported on its balance sheet last quarter, but since most of the money it earned came from overseas, it chose not to repatriate it at this time -- no doubt because it would be penalized for doing so.
With burdensome legacy costs, a market cooling to high-priced patent auctions, and an apparent rising cash-burn rate, Kodak has few options open to it to fund its operations. It's for those reasons I maintain that the once-iconic company's best option is to sell itself to the highest bidder. Since it refuses to consider the option, it's why I rated it to underperform on CAPS last year. To date, Kodak's shares have plummeted 61% while the market has declined just 2%.
There was a rush of exuberance after Nortel's patents sold for $4.5 billion, followed by Google's purchase of Motorola Mobility (NYSE: MMI ) for more than $12 billion. If all those wireless patents were worth that much, how much could InterDigital get if it sold itself and its 8,000-plus patents to the highest bidder? Apparently not as much as it thought.
According to DealReporter, InterDigital was able to scare up only between $1 billion and $2 billion worth of offers, below its market value and well below the peak at the height of the mania.
With or without a deal, the CAPS community thinks InterDigital will succeed, as 96% of the 1,300 members rating the wireless specialist say it will outperform the broad market averages. You can tell us on the InterDigital CAPS page or in the comments section below if you agree, and then follow the buyout bids by adding it to your watchlist.
Be fearful when others are greedy
When Ivanhoe Mines struck an agreement with the government of Mongolia for its Oyu Tolgoi Project in October 2009, the price of gold was fluctuating around $1,000 an ounce. We don't need to recount how gold has responded since then, and despite a 2% slump that pulled gold below $1,600 an ounce yesterday, it still represents a 60% return in two years' time.
Ivanhoe and Rio Tinto (NYSE: RIO ) have sunk billions into the project already, but the Mongolian government is getting greedy and wants to reopen negotiations. It has a 34% interest in the project that grows to 50% in 30 years, but it wants to speed up the timetable and grab that larger portion sooner. The potential that the deal could fall apart sent the stock of not only Ivanhoe lower, but that of Entree Gold as well, since it owns the mining license and thus a stake in the project, too.
More than 94% of the CAPS All-Stars rating Entree still think it has a good chance of realizing the potential from the mine, but you can add the stock to the Fool's free portfolio tracker if you think the risk has escalated to a new level.
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.