The Market Just Spanked My Stock!

The markets roared back to life yesterday on better housing numbers and a successful Spanish bond auction. So even though 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)

Tuesday's Change

Targacept (Nasdaq: TRGT  ) * (35.9%)
Red Hat (NYSE: RHT  ) ** (8.9%)
Clearwire (Nasdaq: CLWR  ) ** (7.1%)

The markets soared 337 points yesterday, or almost 3%, so stocks that went down by even larger percentages are pretty big deals.

That's going to leave a mark
Two strikes and you're out? Drug developer Targacept is definitely on the ropes following the second failure in as many months of its experimental antidepressant TC-5214 to meet its primary endpoint of efficacy. Two down and two studies to go, but even partner AstraZeneca (NYSE: AZN  ) is writing down the intangible assets related to the drug, considering there's such little hope it will succeed.

It's a particularly dismal outcome for Targacept, because the treatment was its lead drug candidate. It has an Alzheimer's drug -- also in partnership with AstraZeneca -- in mid-stage trials that seems to have a cloudy future as well. Results obtained from earlier studies were inconclusive.

AstraZeneca also suffered a setback with olaparib, used to treat ovarian cancer, and declined to have it advance to phase 3 trials. But TC-5214 was its hope to stave off the looming patent cliff it faces as its antidepressant Seroquel, from which it generated more than $5 billion in revenues in 2010, goes off-patent next year. Asthma treatment Symbicort, also facing generic competition in 2012, contributed more than $3 billion last year.

It did have a blood thinner approved this past summer, but with Bristol-Myers Squibb seeing its Plavix blood thinner go off-patent this coming May, AstraZeneca will be facing generics not of its own making.

In short, the TC-5214 was a debacle for both companies, though Targacept bore the brunt of it. A number of CAPS members had followed legendary investor Seth Klarman into the drugmaker, noting his record of success, which provides Momentum21 a little comfort in that he's entering now after the haircut. You can add Targacept to your watchlist and see whether it can recover from this latest shellacking.

In the breakdown lane
That's some bad hat, Harry. And some bad news for open-source software specialist Red Hat, which reported earnings that on the surface looked good, coming in as they did two pennies ahead of expectations with revenues higher than forecasted, but also showing a slowdown in billings growth.

That seemed to catch some off guard, even as organic billings jumped 23% year over year. For analysts, though, Red Hat's annual contract value rose 25% from the year-ago period, and they believe that's a more stable predictor of future business.

But software companies are building up a head of steam downward, as Oracle (Nasdaq: ORCL  ) also handed out a bad news surprise yesterday after the markets closed. Revenue increased just 2% in the quarter, marking the first time in a decade it had missed analyst expectations, and shares are down more than 11% in midday trading.

That might be why nearly 20% of the CAPS members rating Red Hat are circumspect about its future, believing the business environment remains soft with not much catalyst for growth in the near term. Let us know in the comments section below or on the Red Hat CAPS page whether you think it will be going about begging hat in hand, and follow its progress by adding it to the Fool's free portfolio tracker.

Crash and burn?
Despite falling on the day after AT&T (NYSE: T  ) announced it was abandoning its pursuit of T-Mobile, Clearwire could be the big winner here because Ma Bell may just decide its unused bandwidth and need of financing would make the perfect partner instead.

There were simply too many hurdles AT&T was going to have to jump over to complete the merger with T-Mobile that it decided to cut its losses and run. Some analysts speculate that it may run into the arms of Clearwire, since Sprint Nextel (NYSE: S  ) is slowly untethering itself. There's also speculation DISH Network could be a possible mate as well as it also has lots of bandwidth that AT&T needs.

Clearwire's stock rebounded today, giving hope to the 82% of CAPS members weighing in on the stock who believe it will outperform the broad market averages. You can follow along by adding Clearwire to your watchlist, which will bring you all the Foolish news and analysis about its progress.

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. Balance out the extremes by having a mix of stocks, funds, and ETFs that will help you maximize your retirement savings. You can find them in The Motley Fool's brand new report, "The Shocking Can't-Miss Truth About Your Retirement." This is a special free report that you can access right now simply by clicking here -- it's free.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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