Fear of Heights Drags These Stocks Lower

The prospect of Washington coming to a last-minute deal to avert the country from going over the fiscal cliff saw the Dow Jones Industrial Average jump 166 points on Monday, with every single component of the index rising -- the complete opposite of what happened on Friday.

The biggest winners weren't the financial stocks, which may perhaps benefit most from a deal being struck, though Bank of America did jump 2% for the day. No, it was the tech and industrial giants Hewlett-Packard and Caterpillar, up 4% and 3%, respectively, that realized the greatest benefit from the optimism. While it seems HP is simply getting a temporary reprieve (it still has to contend with investigations into its Autonomy acquisition), Caterpillar has the added prospects of greater economic growth in China.

While the three companies below managed to miss the end-of-year party, it wasn't a wholesale rout, suggesting even with losers it was more of a watch-and-wait scenario for them. Still, the markets rose broadly, with around 80% of the stocks on the NYSE and Nasdaq exchanges jumping higher -- and these stocks went the other way.

Company

% Change

Cal-Maine Foods (NASDAQ: CALM  )

(9.5%)

Skullcandy (NASDAQ: SKUL  )

(3.6%)

Geron (NASDAQ: GERN  )

(3.4%)


Now don't go running over the cliff with them like a bunch of lemmings; it could just be a temporary situation. Let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.

Scrambled eggs
With Cal-Maine Foods having just hit a new 52-week high last week, the plunging profit situation at the company caught the market by surprise. Particularly since revenues were up 13% from the year-ago period, the 39% drop-off in earnings means that even if commodities are no longer rising at a breakneck pace, their impact is still being felt.

Cal-Maine sold 9% more eggs in the quarter, 238,064 dozens, to be exact, and its average selling price rose to $1.32 per dozen from $1.27, up 4%, but the company also said the cost of feed per dozen far outstripped its ability to pass along those increases, jumping 23% to $0.574 from $0.465.

Those high feed costs also played havoc with other farmers like Dean Foods (NYSE: DF  ) , which saw its stock plunge during the summer at the height of the year's drought that caused corn prices to soar. Fertilizer giants like Mosaic may have benefited as farmers needed to replenish their fields and demand rose amid higher prices, but dairy farmers like Dean, chicken ranchers like Cal-Maine and Tyson Foods, and pork producers like Smithfield Foods were all burned.

Even though Cal-Maine says costs will remain at elevated levels, I view the surprise weakness as a buying opportunity since the worst of it seems to have passed.

What a headache
Headphone maker Skullcandy got its head handed to it again on Monday though there was no company-specific news to account for the decline. It's really been in freefall since it had to resort to severe discounting to move its product in the face of mounting competitive pressure from Dr. Dre's Beats line, and now everyone else seems to have come out with a rival product. Most notable was Apple's improved earbud, which really took the wind out of its sails, and the stock has been on a single trajectory -- down.

Skullcandy's stock lost 41% of its value in 2012 and is trading at less than half the price it was at its peak this past spring. I still don't see any catalyst for growth, even if it is expanding into Mexico and other locations, because there remains no moat to protect it there, just as there was none here at home. Dr. Dre can show up in Mexico just as easily, and while Skullcandy has a roster of names it can draw on too, it's quickly been commoditized and offers no real benefit. Avoid the stock in 2013 just as you should have in 2012.

Bleeding investors dry
Geron is another stock that had a down day on no news, but with all its eggs in its imetelstat basket, and a seeming daily drubbing of bad news, it looks more like its decision to abandon stem cell research for oncology will cause the biotech to eventually blow up.

While the experimental drug did have some positive developments a few weeks ago when some trial data suggested it might be an effective treatment in certain blood diseases, after its string of failures it's way too early to be pinning any hopes on imetelstat for these indications as trials progress. Staying away from Geron this year until it can offer more concrete proof of efficacy means you'll likely miss a good chunk of any run-up on such an announcement, but it also protects you from the downside, which seems a better bet at this point.

More expert advice from The Motley Fool
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

 


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