Why Did My Stock Just Die?

Three out of the past four trading days have marked big moves higher for the Dow Jones Industrial Average, putting the index within striking distance once again of the psychologically important 14,000-point threshold. Yesterday's 99-point gain came up just short of being the fourth straight day of a triple-digit swing.

Yet 70% of all the stocks listed on New York Stock Exchange moved up yesterday, leaving the three following companies to be among the more notable ones going in the opposite direction and leading the way down.

Company

% Change

Arch Coal (NYSE: ACI  )

(12.8%)

Baidu (NASDAQ: BIDU  )

(10.1%)

NII Holdings (NASDAQOTH: NIHDQ  )

(8.6%)

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.

In the line of fire
It's true the coal industry is fighting for survival with one hand tied behind its back, as tough new regulations weaken demand for its output. But the larger problem is competing against natural gas, which itself is languid amid historically low prices but doesn't have all the same baggage coal carries with it. Thus we find utilities switching from coal to gas to fire their plants, leading to lower production levels among the miners.

Arch Coal posted a wider-than-expected fourth-quarter loss of $1.39 per share, as revenues dropped 21% to $968 million. Sales volumes were down precipitously across all regions, with the Powder River Basin dropping 14% and Appalachia tumbling almost 30%, leaving it with little choice but to reduce production and close mines to try to match demand. Arch primarily sells thermal coal, though a small component is in the metallurgical coal market used for steelmaking.

Arch is looking for the uptick in gas prices here at home to help tilt the field in favor of power plants re-examining the benefits of coal usage. With colder winter weather gripping international markets -- Moscow was recently hit with the heaviest snowfall in a century -- U.S. coal exports ought to get a boost, too. Arch shipped 3 million tons of coal overseas in the fourth quarter, marking a record for the miner, but even it admits the number is likely to be lower in 2013 than last year. Thus, it remains difficult to generate any enthusiasm for the industry until there's evidence coal really is recovering.

Searching for a solution
Despite holding a generally favorable opinion of China's top search engine, Baidu, I recently expressed concern that analyst expectations for growth were much too rosy, particularly as rivals such as Sohu.com (NASDAQ: SOHU  ) and Qihoo.com (NYSE: QIHU  ) nipped at its heels.

The country's demographics are in its favor because it has relatively low penetration rates when it comes to Internet users, so it's natural to think they'll turn to Baidu for search as more people go online. And while it experienced a 42% jump in revenues in the fourth quarter that generated a 24% rise in operating profits, it's still below what analysts are forecasting for the long term even if they were ahead of quarterly expectations. But it was Baidu's guidance for the first quarter that scared investors as the midpoint came in below Wall Street's consensus.

The search giant's shares are down 13% since I questioned whether it was worth more than $100, and I'll admit they're far more attractive now than they were almost a month ago, but I'd like to see a little more of a discount before I move in.

Hanging up on growth
NII Holdings is another company I've expressed misgivings about, believing the Brazilian wireless communications operator would find it difficult going up against larger, better-financed rivals. The Brazilian market is a veritable United Nations of telecom companies, but they tend to represent the biggest ones in their respective markets: Spain's Telefonica (NYSE: TEF  ) , Italy's Telecom Italia (NYSE: TI  ) , and Mexico's America Movil (NYSE: AMX  ) . Although NII is representing Sprint's (NYSE: S  ) Nextel brand south of the border, it holds just a tiny sliver of market share, and it offered guidance that suggests it's going to get narrower.

The wireless operator said it expected 2013 revenues will hit $5.7 billion to $5.9 billion, which came in short of the $6.1 billion Wall Street anticipated. Despite plans to acquire privately held Unicel do Brasil Telecomunicacoes to help expand capacity, I don't see it moving the needle much and plan on maintaining my underperform rating of NII on Motley Fool CAPS. Let me know in the comments box below whether you think the Nextel brand could still be the next big thing in South America.

Ready for a resurrection
Regardless of your short-term view on the Chinese economy, there may be opportunity in Baidu (a.k.a. the "Chinese Google"). Our brand-new premium report breaks down the dominant Chinese search provider's strengths and weaknesses. Just click here to access it now.

 


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