September came to an end and completed the market's worst quarter in three years, but your stock went and took 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.
CAPS Rating (out of 5)
|Eastman Kodak (NYSE: EK )||*||(53.8%)|
|EnerNOC (Nasdaq: ENOC )||****||(18.0%)|
|Renren (Nasdaq: RENN )||*||(12.8%)|
With the Dow Jones Industrial Average (INDEX: ^DJI) tumbling 240 points on Friday, or 2.2%, stocks that went down by even larger percentages are pretty big deals.
A brief pit stop
The end seems near for once-iconic film and camera maker Eastman Kodak, doesn't it? Despite denying it had no intentions of declaring bankruptcy, hiring a restructuring law firm (the same one Chrysler used in its bankruptcy) and releasing the news late on a Friday afternoon doesn't instill much confidence, since it previously hired investment bank Lazard for advice on selling off its patent assets.
Particularly after Kodak had to tap its credit line just to pay its day-to-day bills, it seems that the turnaround being engendered by CEO Antonio Perez just isn't working, even though he promises next year the company will be profitable. The switch to a digital world took Kodak too long to respond to, and deciding to be a printer company and challenge Hewlett-Packard (NYSE: HPQ ) and Lexmark with a new business model that costs consumers more money up front seems to have been a boneheaded move, at best.
Kodak won't report earnings till later this month or early next month, but it's possible the stock could get a small bounce then if it shows it hasn't been burning as much money as the credit-line drawndown suggests. The company generates a lot of cash overseas and chose not to repatriate it at this time for tax reasons, which is why it says it had to tap the credit line.
Still, even if the company otherwise looks healthier then, the likelihood that Kodak can survive by itself further out seems dim. Remember, it still carries crushing legacy burdens like a hugely underfunded pension plan. CAPS All-Star mikotian sees a bankruptcy filing looming large, which is probably why only 54% of all the All-Stars rating Kodak think it can still come out ahead.
The devil's in the details
Demand-response aggregators like EnerNOC and Comverge assist consumers and businesses in remotely reducing their electrical consumption during peak demand periods, though smart-meter maker Itron (Nasdaq: ITRI ) is perhaps one of the better-known companies helping residential consumers make more informed energy choices. In return for EnerNOC's assistance, utilities and grid operators pay them for reducing the overall demand on the grid.
But troubles keep mounting for EnerNOC. It has been engaged in a dispute with electric-grid operator PJM over alleged double payments it received. PJM has also eliminated a program EnerNOC heavily participated in, so EnerNOC's revenues over the next year or so will take a big hit as the grid operator accounts for more than half of total revenues. Analysts also think FERC rules implemented at the behest of PJM will require EnerNOC to triple the size of a credit facility, something they think is highly unlikely.
In its bid to buy Energy Response, it transferred cash to fund the acquisition, putting it out of compliance with one of the covenants with Silicon Valley Bank. While it obtained a waiver for the technical default, analysts at Wedbush Morgan don't think SVB will want to raise the limits for EnerNOC. A possible FERC inquiry into the double-billing issue doesn't help, either.
With almost 750 CAPS members weighing in on the smart-grid specialist, 95% still believe it will go on to outperform the broad market averages. Its four-star rating means they have less concern over its ability to recover from these setbacks.
It wasn't me!
To hear Renren's CEO tell it, the loss of 78% of the stock's value since its IPO has nothing to do with the company's own business actions but can be laid at the feet of Alibaba Group and its decision to spin off its Alipay division without cluing in big shareholders like Yahoo! (Nasdaq: YHOO ) .
There was a lot of worry about Chinese Internet stocks -- heck, Chinese stocks in general -- long before Alibaba tried to snooker Yahoo! The running revelations of rampant fraud in small-cap RTOs did more damage than any spinoff plot, and Renren's own case of overstating its user-base growth numbers, coupled with its subpar internal financial controls, make many fear that it won't be anything like "China's Facebook."
It's certainly one of the reasons I had in mind when I marked Renren to underperform the broad market averages. And though more than two-thirds of the CAPS members rating the social-network site think it will still beat the Street, tellingly 53% of the All-Stars weighing in do not.
So add Renren to the Fool's free portfolio tracker if you think it still has a chance to overcome the very big hurdles that it and other Chinese small-cap stocks face.
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.