These 2 Stocks Couldn't Beat a Down Dow

The Dow Jones Industrial Average cratered after a horrendous jobs report teamed up with lower manufacturing data from around the globe to produce a 215-point drop, or a decline of 1.7%. Some stocks managed to do even worse, falling by double-digit percentages. Let's see whether they had good reason to drop as panic-fueled declines can sometimes make for excellent buying opportunities.

Take a picture
Count my Foolish colleague Anders Bylund as downright giddy over OmniVision Technologies' (Nasdaq: OVTI  ) earnings report, which sent its stock skidding more than 13% on Friday. It's not so much what the report included or what it said, but rather what it means for the chip designer's future.

In short, Anders is pretty darn sure investors can just ignore the current quarter's results and focus on what's coming: its inclusion in Apple's (Nasdaq: AAPL  ) next iPhone iteration, expected by most to hit sometime in the fall.

The current numbers show what happened after Sony displaced one of OmniVision's image sensors, itself an event that brought the stock low. Discard that. OmniVision says it is ramping up production of its BSI-2 chips, or backside illumination, which will serve some key customer applications. But because of their high-cost production, it will eat into margins. Anders, and several other analysts, anticipate it means this is a big product win for OmniVision in the iPhone. They're scrambling to coordinate their customer's huge production schedule with their own inventory.

Over in the Motley Fool CAPS investor community, there's a similar abundance of optimism that OmniVision has caught lightning in a bottle again. Member mega19428 expects the chip supplier to get caught up in Apple's updraft to the next level, noting OmniVision is "(b)ack in Apples good graces and should see a huge upside with i products going forward. Apple is going all the way past a 1000 and Omivision will be riding their coattails."

I previously rated OmniVision to outperform the market on CAPS, figuring the blowback from Sony's inclusion was too much panic-driven selling, and while I'm ahead of the S&P 500 by a small amount thus far, if we had a "double-down" button I'd press it because this sell-off seems like a lot of the same thing. But you can tell me on the OmniVision Technologies CAPS page or in the comments section below if you agree with Anders that its guidance portends a big Apple win, then add the chip supplier to the Fool's free stock-tracking service to see how the drama plays out.

That sinking feeling
A recovery in the housing market was really only believed by the National Realtors Association and those ignoring what is really happening in the industry, but there I go being redundant. For those willing to look, it's been hard to miss that despite the cheerleading from the industry mouthpiece, the housing industry not only is not recovering but still has further to fall.

PulteGroup's (NYSE: PHM  ) near-12% drop on Friday may have been the worst performance among the homebuilders, but it was not the only one: Toll Brothers (NYSE: TOL  ) was down 7.5% and Beazer Homes (NYSE: BZH  ) was off almost 6%. In fact, the CAPS Home Builders sector was collectively down 5.6% on the day.

The catalyst for the drop was nominally the employment report that showed just 69,000 jobs created in May as unemployment jumped up to 8.2% again. People aren't going to be buying new houses if they can't find jobs, and the NAR reported Wednesday that the index tracking contracts to purchase homes fell to 95.5 in April from 101.1 in March, the biggest one-month drop in over a year (100 is considered healthy).

I think the exuberance expressed earlier in the year was probably due more to the mild winter pulling sales forward rather than any real recovery. The S&P/Case-Shiller home price index shows prices are at their lowest levels since the housing crisis began in mid-2006 and are at the same level they were in 2002.

Foreclosure sales are rising, though. They account for 26% of all sales made in the first quarter, up from 22% in the fourth quarter of last year, and from 25% in the year-ago period. With an estimated 10 million homes still in the "shadow inventory" that will need to be worked out before homebuilders can start to see real demand -- and we're talking years here -- don't expect any bounces in homebuilding.

CAPS member bIlluminati understands the impact foreclosures are going to have on housing and has rated PulteGroup to underperform the indexes, but you can have your say on the future of builders in the comments section below, then add Pulte to your watchlist to see if it can still construct a firm foundation for the future.

Ready for a resurrection
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Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not 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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