Why Did These Stocks Just Die?

Well, last week was no fun. What started out on a high note just kept getting worse and ended with the Dow in danger of falling through the 13,000 mark. Economic danger signs at home and abroad weighed significantly on its performance. But with the following companies falling even further than the markets, first let's see whether they had good reason to drop. Sometimes, panic-fueled declines can make excellent buying opportunities.

The markets fell 151 points, or more than 1%, last week, so stocks that went down by larger percentages on Friday alone are pretty big deals. Here are two stocks that fell that could provide a possibility for profit.

Stock

CAPS Rating (out of 5)

Friday's Change

Polycom (Nasdaq: PLCM  ) *** (20%)
Lihua International (Nasdaq: LIWA  ) ** (16.9%)

That's going to leave a mark
Videoconferencing systems specialist Polycom fell well short of analysts' expectations for the first quarter, and investors hit the mute button before running for the exits. With sales in Asia and North America disappointing even Polycom's management, it seems Cisco (Nasdaq: CSCO  ) is still able to flex some muscle in the segment, though the Fool's Anders Bylund doesn't buy that excuse.

Preliminary sales figures show a 7% increase, but that was below anticipated results as the Americas grew only 1% to 3% and Asia rose just 5% to 8% year over year. More surprising to me was the strength recorded in Europe, the Middle East, and Africa, which jumped 15% to 17%. With the financial tumult there, I would have expected it to do worse.

The market researchers at IDC estimate that the unified communications market, of which videoconferencing is a component, will grow to $44 billion by 2015. Polycom is a market leader right alongside Cisco and other vendors including ShoreTel. As Cisco has sought to focus on its core assets -- recall that it shut down its Flip camera division -- there is the possibility Polycom becomes a takeover target, and it would certainly bolster Cisco's WebEx business (Cisco also shut down its Umi home videoconferencing business earlier this year).

Regardless, the analysts at UBS said the sell-off represents a buying opportunity in Polycom shares. This is probably the pullback CAPS member sikiliza was also looking for in the stock.

Revenue growth is healthy at a 24% 3 yr CAGR with the APAC region growing the fastest. Profitable with no debt and growing cash from operations. The stock is currently overvalued with a $14.00 DCF valuation with a beta of 1.01 so no surprises and I expect the stock to underperform in a flat or declining market and in the near term.

Add the videoconferencing leader to your Watchlist to see whether it can connect to growth again or whether someone like Cisco deems it a good time to scoop it up.

A faded patina?
I found no company-specific news to account for troubled Chinese copper-products maker Lihua International's tumble last week. The stock is heavily shorted, however, with more than 12% of its float is sold short with a cumbersome short interest ratio of 22 days (down from 57 days, though, at the end of February).

Copper prices did inch down on Friday, and while metal prices in general are being weighed down by a lack of confidence in Europe's ability to contain the crisis, both Rio Tinto (NYSE: RIO  ) and Vale (NYSE: VALE  ) recently said demand for the metal is outpacing supply, and they believe fears of a Chinese economic hard landing are overblown. That seems to be backed up by positive PMI numbers the country released, boding well for Lihua, which produces copper replacement cable and wire products in China.

Because its stock is thinly traded, Lihua is subject to these types of violent price swings, and investors ought to expect them. While a third of the CAPS All-Stars rating Lihua thinking it will underperform the broad market averages, the broader investment community has a much more positive outlook, with 88% rating it to outperform. However, the two-star rating the copper producer has been assigned suggests a general consensus there might be better places for your money.

But you can add Lihua to the Fool's free portfolio tracker and tell us in the comments section below or on the Lihua International CAPS page why it will rebound from here.

Ready for a resurrection
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Fool contributor Rich Duprey owns shares of Cisco Systems, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Cisco Systems. Motley Fool newsletter services have recommended buying shares of Polycom. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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