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Over the course of years and decades, the performance of a company's fundamental business model determines the direction of its stock price. During the intervening days, weeks, and months, however, stocks can be subject to the whims of simple sentiment.
Solazyme is a company that makes tailored oils by feeding plant-based sugars to patented microalgae. The microalgae then produce oils that can be used by the cosmetic, nutritional, chemical, and fuel industries. The company technology holds enormous potential, but has yet to turn a profit. Some are also worried that the company's contracts to provide fuel to the U.S. Navy will come under pressure from Congress.
The company is down over 10% today on news that a Raymond James analyst had downgraded the stock to "market perform" from "outperform." Biofuel competitors KiOR (Nasdaq: KIOR ) , Amyris (Nasdaq: AMRS ) , and Gevo (Nasdaq: GEVO ) are all down over 5% on the news as well.
The reasoning for the downgrade is curious. Apparently, the stock passed the $14 price point set by the analyst, so the analyst downgraded the stock.
With small, innovative, and not-yet-profitable companies, it can be almost impossible to assign a long-term value to the business. Solazyme's technology could be picked up by ever-more consumers and boom, or it could run into serious problems in providing feedstock to make its oils. Either way, if you believe in the underlying business and prospects of this or any of the other biofuel providers, today's dips provide a good entry point.
Veolia is a behemoth European company that specializes in waste and water management systems. At the start of 2012, I singled out the company as my No. 1 dividend play for 2012.
The company brought on a massive amount of debt under former CEO Henri Proglio and is recovering by exiting several markets in which it operated, including its transportation business across the globe as well as waste service in North America. Just last week, the company announced its successful divestiture of water business in the U.K. to help pay down debt.
Despite that move, a UBS analyst downgraded the stock to "sell" this morning. That has shares tumbling more than 8% today.
Looking beyond the near-term, I still remain convinced that if current CEO Antoine Frerot is able to deal with the company's debt problems and refocus its business on waste and water management in Europe and emerging economies, the company is a solid buy. With a dividend payout hovering just below 6%, I think it's worth a look for any dividend investor.
Keep your eye on the long-term horizon
It can be difficult for investors to remember that investing is a marathon -- not a sprint. Large moves from day to day and week to week can scare people in and out of stocks on a regular basis. Unfortunately, that's a recipe for underperformance.
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