After a disastrous mid-month stretch that left the S&P 500 down 7.6% through the month, on Nov. 25, markets staged a furious rally in November's final trading days. Overall, the S&P closed down the month down just 0.5%.
That volatility led to several technology companies getting crushed. In particular, recent IPOs and Chinese stocks weathered a brutal November that was hardly saved by the market's late rally.
|
Company
|
Market Cap (in thousands)
|
Share Price Gain in November
|
| Renren (NYSE: RENN ) |
1,450.5
|
(47.4)
|
| Rovi |
3,052.4
|
(44.0)
|
| IPG Photonics (Nasdaq: IPGP ) |
1,822.2
|
(27.5)
|
| LinkedIn |
6,431.8
|
(26.7)
|
| Pegasystems |
1,088.5
|
(23.6)
|
| Computer Sciences Corporation |
3,788.1
|
(22.3)
|
| Yandex (Nasdaq: YNDX ) |
7,099.4
|
(20.1)
|
| Qihoo 360 Technology (NYSE: QIHU ) |
1,896.1
|
(18.8)
|
| SINA (Nasdaq: SINA ) |
4,352.5
|
(18.7)
|
| Sohu.com |
1,882.3
|
(18.1)
|
| Skyworks Solutions |
3,064.5
|
(17.7)
|
| Universal Display (Nasdaq: PANL ) |
1,793.2
|
(16.8)
|
| EchoStar |
1,902.4
|
(16.6)
|
| Atmel |
4,103.3
|
(16.0)
|
| Broadcom |
16,356.0
|
(15.9)
|
| RF Micro Devices (Nasdaq: RFMD ) |
1,731.7
|
(15.1)
|
| Elster Group |
1,453.9
|
(13.5)
|
| Fairchild Semiconductor International |
1,637.2
|
(13.5)
|
| International Rectifier |
1,452.0
|
(13.4)
|
| Solera Holdings |
3,355.2
|
(13.4)
|
Source: S&P Capital IQ. Qualifying companies had a minimum market cap of $1 billion and were primarily listed on United States exchanges.
The high-level points are that companies within the radio frequency and communications industries took it on the chin a bit stronger than the general market; growth stocks with high multiples pulled back more severely mid-month and didn't see a similar recovery at the tail end of November; and foreign stocks and recent IPOs were hammered.
Let's dig into that final point.
There be no shelter here
Chinese companies like Qihu and Renren both make the list. Recent IPOs in general were hurt, with LinkedIn also making the list of tech's worst performers, but these two companies experienced the double whammy of also hailing from the challenged Chinese market. Not only has recent economic data spooked investors of a coming slowdown, but chronic corporate oversight concerns plague companies in the country.
Qihu 360 is in an ongoing back-and-forth with Citron Research, a researcher that's exposed several companies that were either fraudulent or cooking the books. SINA felt the brunt of governance concerns this week as well, when bogus rumors circulated that famed Chinese short-researcher Muddy Waters was taking a look at the company.
While I find the competitive positions and business models of several large Chinese companies to be enviable, investors have to be aware that when investing in companies within the country:
- There will be extreme volatility, with mere rumors and reports driving prices in outsized ways.
- You can't forecast risk controls nearly as well as other countries. Even the best-run companies will be saddled with a valuation discount until there's a better corporate governance structure in the country. There's just too much fraud and too many unknowns lurking in company financial statements.
- There's always the wild card of government involvement. For example, I think Baidu has established an underappreciated vice grip on search within the country. However, the largest threat that remains would be government involvement. This is a risk that could rapidly change with little notice.
A company that's on my radar
One company on the list that immediately sparks my interest is IPG Photonics. The company kicked off November reporting solid, if unspectacular, earnings. Earnings of $0.66 per share beat estimates by a couple pennies, but revenue guidance that came in below expectations led to investors selling off the company's shares. However, throughout the month, negativity snowballed and left IPG down nearly 28% in November.
We can't be sure whether the sell-off was the result of investors piling out of growth stocks -- though IPG's P/E of 16.5 looks quite reasonable today -- or fears that slowing industrial demand in China could lead to pain ahead for IPG. In any case, I still think we're looking at a market leader in a growth market, and whatever concerns causing the sell-off are overblown. IPG Photonics is firmly on my watchlist in the coming months.
A trend no investor should ignore
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