Why Did My Stock Just Die?

Only those whistling past the graveyard had to expect Greece to live up to its austerity measures, but the markets tumbled nonetheless when it said it likely wouldn't meet its deficit reduction targets. While your stock went and took an even bigger nosedive, don't panic. 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)

Monday's Change

AMR (NYSE: AMR  ) * (33.1%)
Sangamo Biosciences (Nasdaq: SGMO  ) *** (30.1%)
Suntech Power (NYSE: STP  ) **** (26.4%)

With the Dow Jones Industrial Average (INDEX: ^DJI) plummeting another 258 points Monday, or 2.4%, stocks that went down by even larger percentages are pretty big deals.

Doing a touch-and-go
With the number of pilots putting in their retirement papers rising, the fear is that American Airlines parent AMR may be heading toward a bankruptcy filing. As jet fuel costs soar and economic concerns get dicier, the pilots may be thinking they want to protect their pensions in the event the airline goes south. Normally, a dozen or so pilots file for retirement every month, but there were 111 retirements in August, followed by 129 in September.

They should remember the sorry experience of their brethren at United Continental (NYSE: UAL  ) , who still haven't recovered from the airline's bankruptcy in 2005. Back then, United wanted to emerge from the court's protection, but needed to reduce costs. It chose to default on its pension obligations and foisted the obligation on the federal Pension Benefit Guarantee Corp. As a result, even previously retired pilots saw their pension benefits dramatically cut.

The one who made out in the deal was United CEO Glenn Tilton, who received $20 million of new company stock when United emerged from bankruptcy, ensuring his own retirement wouldn't be jeopardized.

Unlike many of its rivals, American hasn't gone through bankruptcy, so its costs are a heavier burden to it than at rivals United or Delta Air Lines.

Fewer than half of the CAPS All-Stars rating the stock think it will outperform the markets. Give us your views on the AMR CAPS page and add the ticker to your watchlist to stay up to date on all the Foolish news and analysis of the stock.

Finger pointing
If you were betting on Sangamo BioSciences getting a drug to market sooner rather than later, you might need to revise those estimates. A midstage clinical trial of its most advanced drug candidate, diabetic neuropathy treatment SB-509, failed to do better than a placebo and met none of its goals, so the company will be ending its development.

Fellow Fool Brian Orelli said Sangamo had set the bar higher for success than diabetic neuropathy treatments from Pfizer (NYSE: PFE  ) or Eli Lilly, both of which treat the pain caused by the illness. SB-509 had sought to treat the underlying cause of the pain. Yet noble ends mean little if you can't get across the hurdles to approval. Fortunately, Sangamo still has treatments for HIV, brain cancer, and hemophilia using its zinc-finger technology. They're just not as far along as SB-509 was.

CAPS member pchop123 wasn't expecting overnight results from the biotech, so while undoubtedly disappointed with the recent results, this CAPS member is still looking long term.

With 92% of the 247 CAPS members weighing in on the biotech believing it will go on to outperform the broad market averages, they don't seem to be overly worried about it not being able to recover from these setbacks. Add Sangamo to your watchlist and check the opinions of others on the Sangamo BioSciences CAPS page.

Storm clouds on the horizon
The solar sector isn't facing a cloudy future; it's a dark, dreary, tempest-tossed one. Yesterday's news that SunPower was reducing full-year revenue and profit guidance to reflect weakened business conditions is just another in a long line of realizations by solar shops that their market is entering a very bleak period. Last month, LDK Solar (NYSE: LDK  ) slashed its revenue guidance by 34%; cut its wafer shipment projections by 21%; slashed its module shipment forecast, dropping it by nearly two-thirds; and said gross margins would be all but wiped out.

The CAPS solar power sector fell almost 10% yesterday, but Suntech Power took it particularly hard. (Even SunPower was down just 8% on the day.) The support system underpinning much of the growth is drying up or has already faded away. With European governments teetering on the brink of default, they can no longer afford the generous subsidies that were ladled out to encourage production and installation. Europe accounted for about 80% of the demand for solar panels in 2010.

I find myself in agreement with CAPS member beefangusbeef, who critiques solar power generally and Suntech specifically as a weak solution to our energy needs:

Solar Energy is the wave of the past. Unprofitable, political, and a bad choice overall financially. It may make us feel good, but make money it does not.

Add Suntech to the Fool's free portfolio tracker if you think it has a chance to see sunny days ahead.

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 holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. 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.


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  • Report this Comment On October 04, 2011, at 3:57 PM, lenboi wrote:

    it is an absolute joke. The market will put out fear messages and get everyone to sell in the morning then take the profits. I say pull all your money out and put it in somewhere safe. Then let the market come begging back to you.

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