Why Did My Stock Just Fall Apart?

U.S. markets rose on continued hopes for European normalcy. Although your stock took a 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)

Wednesday's Change

Eastman Kodak (NYSE: EK  )

*

(12.1%)

Platinum Underwriters (NYSE: PTP  )

*****

(9.5%)

The Buckle (NYSE: BKE  )

***

(3.8%)

With the Dow Jones Industrial Average (INDEX: ^DJI) rising 102 points yesterday, or 1%, stocks that went down by even larger percentages are pretty big deals.

Shake it like a Polaroid
Last week, Eastman Kodak got a bounce from bold talk it had no intention of filing for bankruptcy. This week, bondholders are pressuring the company to make sure they're first in line should it successfully sell any of its patents rather than trusting in management to appropriately allocate the cash it would receive. Obviously, considering the company's track record, they have a right to be concerned.

What's worrisome is the bondholders -- including Fidelity, Blackstone Group (NYSE: BX  ) , and Avenue Capital -- aren't concerned about allowing Kodak to funnel the money into operations. Since the debt they hold is backed by the patents, they want to be paid off if the patents no longer exist in its portfolio. So a company that has already needed to tap its credit line to finance day-to-day operations would get a large satchel of cash that might be able to help it turn around except its lenders want their money back. If those who've loaned Kodak money have little confidence in management, why should you?

Adding to the worry is that potential patent buyers might not be able to buy the patents anyway if the company is insolvent. With earnings coming soon, Kodak is going to have to prove that it's not only talking tough about filing for bankruptcy, but that its operations can back it up.

CAPS All-Star MaxTheTerrible has as little confidence in the iconic company as the bondholders, believing it will go belly-up sooner rather than later: "It's a bet that Kodak will not survive (there seems to be discontent between the stock market and bond market price actions and in situations like these I tend to trust the latter)."

Let us know in the comments section below or on the Eastman Kodak CAPS page if it will end up being bound by the bondholders. Also add it to your watchlist to be notified of the latest developments.

Not so precious
When those charged with calculating risk are found lacking in their ability to add up the potential damage to their own business from those same risks, it's not surprising to see investors run for the exits. That's what happened with Platinum Underwriters, a Bermuda-based reinsurer that was swamped with losses as a result of the weather patterns that went haywire earlier this year.

It had a finger in just about every catastrophe that occurred, from the New Zealand and Japan earthquakes to Hurricane Irene. The disasters ripped through its operations, causing it to take a $112 million charge to third-quarter results. The problem for Platinum was that it underestimated how much the earthquakes would cost it as it had to take even more charges related to them when other insurers had put the damage behind them.

It wasn't alone in the wreckage, as property and casualty insurers like Allstate (NYSE: ALL  ) felt the storms' wrath, as did Berkshire Hathaway (NYSE: BRK-B  ) , but the upside to it is insurers will be looking opportunistically to increase pricing.

That could explain why all three dozen CAPS All-Stars rating the reinsurer think it will ultimately outperform the broad market averages. Add Platinum Underwriters to your watchlist and let us know in the comments section below what you calculate the risk will be to your portfolio.

Buckle up
Don't worry about The Buckle's drop today. While the 3% drop was mild enough in the grand scheme of things, the decline was primarily related to its trading ex-dividend today. It paid out a $0.20 per share regular dividend and a $2.25 per share special dividend.

The ex-dividend date is the last day that the shareholder has the rights to any dividend paid at the next payout date. If you buy a stock before the ex-dividend date you will receive the next dividend payout; buy it after the ex-dividend date and you'll miss out. Moreover, if the amount of the dividend is much larger than the typical trading range of a stock, you'll likely see a big drop in value like Buckle experienced. For that reason, you'll want to keep track of ex-div dates.

Buckle had a really strong September sales period with comps rising more than 10%, putting it up there with Zumiez and Limited Brands (NYSE: LTD  ) as some of the month's strongest retailer performers.

With 89% of CAPS members rating it to beat the Street, the investor community is confident the drop will just be temporary. But add the retailer to the Fool's free portfolio tracker and tell us on the Buckle CAPS page if you think investors need to buckle down for the wild ride ahead.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Limited Brands and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Zumiez. 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 14, 2011, at 11:05 AM, trickytom wrote:

    Is Kodaks porfolio really worth what Perez claims? Or is it a myth to atttempt to stave off Wall Street? Many of the patents old and have been surpassed by rivals. Others are trivial updates of old patents to make the porfolio look excessively large. I would guess a value of $0.5 to0.7B on the marketable patents.

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