When it rains it pours, and the eurozone is in the middle of a soaking. Spain formally requested a bailout, standing in line behind Greece, Ireland, and Portugal as countries that can be deemed financial basket cases. And Cyprus decided to join in the giveaway, too, making it the fifth sovereign to seek aid and adding to the woes already besetting the continent. With Germany standing athwart the ruins, the Dow Jones Industrial Averages tumbled 138 points, or 1.1%, Monday.
Yet some companies managed to do even worse than the market and fell by double-digit percentages. But let's see whether they had good reason to drop and sit out the manic ride down, as sometimes panic-fueled declines can sometimes make for excellent buying opportunities.
CAPS Rating (out of 5)
|GeoEye (Nasdaq: GEOY )||(22.4%)||$14.24||*****|
|Momenta Pharmaceuticals (Nasdaq: MNTA )||(22.4%)||$13.20||****|
|Pioneer Drilling (NYSE: PDC )||(11.8%)||$6.71||****|
|ChipMOS Technologies (Nasdaq: IMOS )||(11.2%)||$9.61||**|
|James River Coal (Nasdaq: JRCC )||(10.0%)||$2.92||**|
A demand economy
The best of the worst performers yesterday, James River Coal, had Standard & Poor's cutting its rating into junk territory because of the worsening outlook for the industry. Coal in general is reeling. Because natural gas is at its cheapest level in decades -- prices are at historically low levels even though they've bounced off the record lows -- utilities are switching from coal to gas. Coal prices have fallen as well, particularly for thermal coal, but gas is cheaper still and EPA regulations are forcing a migration away from the "dirty fuel." For James River, S&P sees even lower prices, lower demand, and lower tonnage contracts next year, a deadly combination likely to lead to great cash burn.
Slack demand was probably behind the drop in shares of ChipMOS Technologies, despite extending an agreement with Spansion for wafer sort services. An article at DigiTimes cautioned that customers are tightly managing inventory and the semiconductor packaging and testing shop will not witness any boom times in the third quarter, though it maintains that the back half of the year should still see strong performance. That suggests that any growth won't happen till the fourth quarter but any expansion plans will have to see whether that actually materializes.
And lower demand was the watchword at Pioneer Drilling as well, where the contract driller said falling prices for both oil and natural gas had reduced the need for some of its services. It's still going to see revenues rise in the production segment, only they're going to come in close to the lower 5% increase it had previously forecasted rather than the 10% top end of the range.
This something to watch closely for other drillers, too, because there's a gold rush away from the dry gas market in favor of liquids, which had been carrying higher margins. Enerplus recently said it was devoting 70% of its capex budget toward liquids, while Energy Transfer Partners is paying $5.3 billion to buy Sunoco's midstream liquids business. GMX Resources, Cimarex Energy, and Encana are all switching more toward liquids production with less focus on gas. We'll probably see a lot more drillers joining Pioneer in lowering guidance.
It wasn't lack of demand that sent Momenta Pharmaceuticals tumbling, but rather losing a patent lawsuit Teva Pharmaceuticals filed against it for the generic Copaxone Momenta and its partner Novartis. Generating more than $3 billion annually for Teva, the loss dooms Momenta to stagnation for at least the balance of the year as analysts contend that it has few catalysts to push it forward in the near term. That doesn't bode well for Mylan, which also has a generic Copaxone under FDA review, though its stock fell only 2% yesterday.
A thumb in the eye
Lost opportunities sank digital-imaging specialist GeoEye after the federal National Geospatial Intelligence Agency said it won't renew GeoEye's EnhancedView contract for the full year. Looks like rival DigitalGlobe had it right after all, that GeoEye's hostile bid for DigitalGlobe was predicated on losing the EnhancedView contract and was an attempt to shore up its business. It threatened to make a counter-offer to GeoEye shareholders after the government rendered its decision, and now that it has been handed down, we'll have to see how much DigitalGlobe will be willing to spend to acquire its rival in this game of tit-for-tat.
CAPS member BlacknGold wasn't worried about the possibility of the lost contract last month, noting that "any loss in revenue will easily be replaced with the launch of the company's next satellite, GeoEye-2, which features the sharpest resolution of any commercial satellite ever created."
Tell me on the GeoEye CAPS page or in the comments section below whether you think this drop represents a good entry point for this eye-in-the-sky leader.
- Add GeoEye to your Watchlist
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- Add Pioneer Drilling to your Watchlist
- Add ChipMOS Technologies to your Watchlist
- Add James River Coal to your Watchlist
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