The S&P 500 is just several points away from making a new 52-week high, based on -- well, I don't know what. Corporate earnings have been better mostly, but outlooks are dim; the economy barely has traction; unemployment rose in 44 states in July; and Europe is still crumbling. Yet the market parties on, rising almost 1% on the week.
Some companies, however, weren't invited to the gala and had their own problems to contend with. They fell sharply over the past five trading days, some 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.
Last Week % Change
CAPS Rating (out of 5)
|Groupon (Nasdaq: GRPN )||(36.2%)||$4.75||*|
|Molycorp (NYSE: MCP )||(23.7%)||$9.84||**|
|Alpha Natural Resources (NYSE: ANR )||(12.2%)||$6.45||***|
Not aging well
Analysts say that after a highly disappointing earnings report showing gross billings falling during the second quarter, Groupon is "maturing," so investors won't be seeing the kind of growth they've come to expect. Gross billings reflect the money Groupon collects from consumers who buy its daily deals. Worse, if the declines persist, it will end up burning cash despite having more than $1 billion in the bank right now. I suspected growth would evaporate, and while it wasn't as bad as it could have been, it still fell far short of the mark.
I don't know if I'd characterize the decline as one of maturation, considering this is a no-moat business. I think it was more a fad that tried to capitalize on the buzz that social networking would be the next megatrend. Pandora Media (NYSE: P ) , Zynga, and Yelp all went public trying out-Facebook Facebook (NYSE: FB ) , yet all have plummeted in the aftermath -- with Facebook being among the worst performers.
I've had an underperform rating on Groupon almost from the IPO, and I don't plan on changing that rating anytime soon, but you can tell me in the comments section if you think the daily-deals specialist is a deal at these prices.
Rare as hen's teeth
Two weeks ago, I said if Molycorp couldn't raise any cash, it would have to cut out both discretionary and non-discretionary capital spending plans. Cash flows from operations have been rarer than the rare-earth metals it wants to mine, and without those funds it won't be able to finance its operations.
Well, the markets didn't like the financial arrangements it ultimately came up with: $414 million worth of convertible senior notes due in 2017 at 6% ($360 million if underwriters don't exercise their overallotments) and 12 million more shares of common stock at $10 each. With $230 million more in convertible debt acquired when it bought a Canadian rare-earth metals processor in June, the combination of debt and expansion of its Mountain Pass mining operation will hardly change Standard & Poor's mind that its credit rating isn't "junk." The ratings agency downgraded Molycorp earlier in the week.
There's way too much Molycorp needs to do first before investors even consider investing in this stock, which could be why 40% of the CAPS All-Stars weighing in on the miner don't see it beating the Street.
A dead canary
Also rare are the prospects for King Coal to retain its throne. As natural gas continues to assault the ramparts, coal demand and pricing steadily melt away. Already this year, Alpha Natural Resources cut its thermal coal production and closed four mines in Kentucky because of plummeting demand. Now another shoe is falling, as the industry braces for benchmark pricing for met coal to tumble 18% to $185 per tonne, putting it closer to its recession-era $129 per tonne in 2009 than the peak pricing of $300 it hit the year before.
Earlier this year, I noted that Alpha made a good, value-priced, long-term pick, because with coal being the most abundant source of energy the U.S. has that could help minimize our reliance on foreign sources of fossil fuels, it didn't make sense to kill off these companies. I still think the hostility will turn and coal will come back, so I'll be maintaining my outperform rating on Alpha Natural Resources on CAPS, but tell me in the comments box below if you agree coal can still retain its crown in the current war against the industry.
Ready for a resurrection
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