Why Did My Stock Just Die?

A spate of good economic news sent the market higher yesterday. 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 are two of the latest crop of cratered stocks that could provide a possibility for profit:

Stock

CAPS Rating (out of 5)

Thursday's Change

Hyperdynamics (NYSE: HDY  ) * (28.7%)
Ancestry.com (Nasdaq: ACOM  ) *** (16.4%)

Source: Yahoo! Finance.

The Dow jumped 123 points yesterday, or 1%, so stocks that actually went down this much are pretty big deals.

Coming up dry
With all of the oil discoveries being made off the west coast of Africa these days and with bigger names like Harvest Natural Resources (NYSE: HNR  ) exploiting the opportunity, it was a major disappointment for Hyperdynamics to run into a dry well in its own offshore exploratory efforts. Well, not exactly dry. The oil exploration company said there used to be oil there, and remnants of it are hanging around, but it seems all the oil they hoped to find had leaked out or it's just a migratory pathway to other areas. Whatever the reason, it's not where they hoped to find it.

The poor location is also probably a result of Hyperdynamics being under the gun from the Guinea government to start drilling. Its contractual obligations required the company to begin before last year ended, and it was facing cost overruns as it experienced mechanical issues and a shortage of port space. Vaalco Energy (NYSE: EGY  ) just got a big boost when Angolan national oil company Sonangol said that the Angolan government agreed to extend its own contractual requirements off the African nation's coast.

Hyperdynamics has its partisans, though, and CAPS member Rowellles suggested at the time that it wasn't the drilling mandate that sent the company to the Sabu well, but rather it represented the best chance it had of finding oil:

The Sabu well is not being drilled because it is required, but because it represents the lowest hanging fruit among the 3,600 sq km of 3-D seismic surveyed in the shallow water of the concession.

It looks like Hyperdynamics is going to need a bigger ladder then to reach the metaphorical higher-hanging fruit. It's optimistic that the presence of the oil means the company will find a more concentrated reserve somewhere in its 9,650-square-mile concession, and it's continuing with 3-D seismic activity to locate it.

For investors who hoped that Hyperdynamics would be able to take a bite of the oil discovery apple in Africa, it's yet another disappointment to learn the fruit is spoiled. While 80% of the CAPS members rating the oil explorer believe it will ultimately outperform the market indexes, the low one-star rating they've assigned to it suggests they think there are much better places for your money.

Add Hyperdynamics to your watchlist to be notified if the next rig it sticks in the ground meets with better success.

The family tree is wilting
Discovering your family's roots apparently has its limits, as Ancestry.com says it will suffer from another year of slowing subscriber growth. The genealogy website is apparently out on a limb and just cut the branch off.

It cost Ancestry more than $107 to acquire every new subscriber in the fourth quarter (up from $93 last quarter), but the company's generating only $18.38 per month in revenue from them (down from $18.68 in the third quarter). So it's costing the company more to get less out of each new member.

Despite numbers that suggest the stock will be swimming in the shallow end of the gene pool for some time, there are new developments on the horizon for the genealogy specialist, including consumer demand for gene sequencing data. Ancestry.com recently placed a $7 million order for data from Illumina (Nasdaq: ILMN  ) . Making such information available to individuals has the potential to be a huge value-added service that ought to enjoy healthy margins.

CAPS member MHenage says if you look at Ancestry's fundamentals, there's still a lot to like about the company -- one which, it should be remembered, has no real competition to speak of:

The player in the genealogy industry online. 16% future growth expected, about $24 mil. positive cash flow average in the last 4 quarters. Balance sheet with no long term debt. Company has beaten earnings expectations 3 of the last 4 quarters. The company has also bought back their shares 3 of the last 4 quarters.

Add the family tree maker to the Fool's free portfolio tracker and let us know on the Ancestry.com CAPS page if you think there's a new branch of growth that will soon be sprouting.

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 finding companies the will help you build a solid retirement portfolio. You can find them in The Motley Fool's brand new report, "3 Stocks That Will Help You Retire Rich" 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. Click here to see his holdings and a short bio. The Motley Fool owns shares of Harvest Natural Resources. Motley Fool newsletter services have recommended buying shares of Ancestry.com and Illumina. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 19, 2012, at 7:14 PM, delahar wrote:

    ILMN is over with the new sequencer released. Its stock is in the 50s at the moment. Not after this week and Roche's departure. This company is dead.

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