There Was No Bailing Out These Stocks

Shoes are dropping all over Europe now as Moody's cut its outlook to negative for Germany, the Netherlands, and Luxembourg, dinging some of the countries that would be financially responsible for bailing out Spain and Italy should the fiscal situation on the other side of the pond further deteriorate. The Dow tumbled another 104 points yesterday in response. Some companies had their own problems to contend with, though, and managed to do even worse, many even plunging by double-digit percentages.

So let's see whether they had good reason to drop, as sometimes panic-fueled declines can lead to excellent buying opportunities.

Company

Yesterday's Change

Price

CAPS Rating (out of 5)

Gentex (Nasdaq: GNTX  ) (29.1%) $15.01 ****
VirnetX Holding (NYSE: VHC  ) (20.7%) $27.08 *
Arch Coal (NYSE: ACI  ) (12.3%) $5.53 ***

Flying blind
It wasn't so much that Gentex missed expectations that its shares got crushed, but rather it was the warning the results contained. The auto-parts supplier makes auto-dimming rearview mirrors and had been counting on new NHTSA regulations that would require rear camera displays, or RCDs, be installed in new cars. In addition to the auto-dimming function, Gentex also makes mirror-mounted RCDs.

Gentex naturally thinks the rearview mirror is the best spot to put them, but the NHTSA has been leaning toward the center console display most cars already come equipped with. While the rule-making has been delayed, four of its customers decided they wouldn't go with the mirror-mounted RCD, opting instead for the console display. It didn't mention who the carmakers were, but Ford, GM, and Chrysler are its top North American customers.

The new rule will cost automakers about $2.7 billion to minimize a problem that kills fewer than 150 people a year. It's an expensive regulation, though it can be limited by using the center console, which some carmakers apparently opted to do. While there's something to be said for using the rearview mirror, since that's where many people naturally look when backing, the center console provides a much larger picture than what's possible with a mirror-mounted version.

Share your thoughts in the comments section below on whether Gentex can see its way forward from this.

Is it secure?
According to the folks at iSuppli, capital spending on 4G and LTE standards will nearly triple over the next year to more than $24 billion and reach $36 billion by 2015. VirnetX Holding has for a long time said it owns essential patents related to the security standards for 4G and LTE, and it filed a complaint against Apple (Nasdaq: AAPL  ) with the U.S. International Trade Commission alleging patent infringement.

Yesterday, though, VirnetX said the tribunal found a "procedural discrepancy" in its complaint that hampers its ability to schedule an investigation into the matter. It was the apparent delay that sent shares of the 4G security specialist tumbling even as the company said it didn't hit at the veracity of the charges it leveled against Apple.

Microsoft was cowed into licensing VirnetX's technology last year, and as 4G proliferates it seems inescapable that others are going to have to as well. I previously rated VirnetX to outperform on CAPS because of this, and the stumbling block thrown in its path doesn't change that. But let me know on the VirnetX CAPS page whether you agree if companies are going to have little wiggle room to get around its big moat -- assuming it can get the paperwork right.

A coal-black future
It was nothing Arch Coal did that caused its stock to fall, but like the cliched canary in the coalmine, Peabody Energy (NYSE: BTU  ) reported earnings yesterday that showed flat revenues, but profits falling 28% from last year. Coming as it does a day after two Pennsylvania coal-mining companies announced layoffs and blamed the rising cost of new regulations for the move, it's easy to see there's not much hope that Arch Coal, which is expected to report earnings on July 27, will be able to weather the rising storm.

The stock has lost 80% of its value over the past year, and after the bankruptcy of Patriot Coal, it's apparent Arch is in a very weak condition itself, with less than $118 million in cash and $4 billion in long-term debt.

CAPS members like All-Star Chemdawg believe it will be able to "survive the current commodity crunch," but even though it sells at a fraction of its sales and book value, it remains in a very precarious place. Share your thoughts below on whether Arch can dig its way out of this hole, and then head to the Arch Coal CAPS page and follow up with a rating.

Ready for a resurrection
Sometimes paying a dividend can make it worthwhile to wait for the storm to pass. A new Motley Fool report singles out the three Dow companies that dividend-craving investors need to own. It's a free report, so download your copy now!

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Gentex, Microsoft, Ford Motor, and Apple. Motley Fool newsletter services have recommended buying shares of General Motors, Microsoft, Ford, and Apple, creating a synthetic long position in Ford, and creating bull call spread positions in Apple and Microsoft. 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. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 26, 2012, at 12:04 AM, eldoctoro wrote:

    Rich,

    IMHO the ITC delay may have had a very small part to play in VHC precipitous drop. Many on the VHC Yahoo and IV board however believe the sell off was a carefully orchestrated bear raid designed to mitigate the massive potential losses to short sellers with 40% of float short position. First Jim Cramer states on national TV that he now believes in VHC and gives a BUY BUY BUY! Then 2 days later Herb Greenberg posts a VHC hit piece (Hidden Risk of VHC) in which he not only suggests the recent settlements between VHC and Mitel and Aastra were of little to no monetary valueme AND further that CEO Ken Larsen's 8+ million shares may be at risk of a margin call (think Green Mountain Coffee) and he could bee forced to sell millions of shares of VHC.

    FWIW...I and many others have contacted CNBC, the SEC and our Senators and Congressmen and asked for an investigation.

    This is not the first time Greenberg has published hit pieces based on falsehoods and intentional bias (he has no clue what the terms of settlements with Mitel and Aastra are). Greenberg's history seems to be 'trash now'..'due diligence later'. What a joke he must be with legitimate analysts laughing behind his back! all IMHO.

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