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Why Did My Stock Just Die?

It was only a 42-point gain yesterday, but the Dow Jones Industrial Average rose to yet another new record high, hitting 14,296 and making this the eighth longest bull market since 1928. With Fed Chairman Ben Bernanke greasing the skids with his QE-infinity, Warren Buffett agreed in a CNBC interview that "cheap money makes things happen." Of course, what happens when the spigot gets turned off, as it eventually must, is left unsaid.

The three stocks below, however, were in no mood to celebrate, with several incurring double-digit losses on the day. But don't go running over the cliff with them like a bunch of lemmings: This 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.


% Change

Acura Pharmaceuticals (NASDAQ: ACUR  )

(12.2%) (NASDAQ: SOHU  )


AeroVironment (NASDAQ: AVAV  )


Accurately depicted
Two steps forward, one step back. That describes what you're seeing at Acura Pharmaceuticals after the stock pulled back following its 48% gain the day before after announcing the Kerr Drug chain would carry its Nexafed decongestant throughout its stores in North Carolina.

As part of the FDA's push to make it difficult to abuse certain drugs, Nexafed is designed so it is difficult to make into methamphetamine. Its composition is such that should a drug abuser try to extract the active ingredient, pseudoephedrine, the whole thing would turn into an unusable thick gel.

Acura began selling Nexafed in December and has been anticipating independent drug stores rather than chains picking up the decongestant, and when it reported its fourth quarter results on Monday, it said it had entered distribution agreements at the end of February with most national and regional drug wholesalers.

Although the stock is down another 9% in early morning trading, it remains up 10% so far this year.

Privately speaking also gave back the gains it made the day before after the Chinese Internet portal denied rumors it was actively seeking a go-private deal. On Tuesday, Sohu's stock jumped 12% after the South China Morning Post reported that the company was in talks with investment banks and private equity funds about a possible buyout, but yesterday the CFO shot them down saying the reports were inaccurate as not only were they not involved in any such discussions, but the idea wasn't even being considered.

Sohu's stock ended the day at $43.44, some $0.20 lower than where they had been before the rumor was published, making it down 16% for the past year.

It wouldn't have been a surprise, though, had Sohu actually confirmed the rumor. After numerous reports of fraud and financial shenanigans occurred at small, Chinese companies over the past few years, investors lost their appetite for them, and many company insiders began mulling whether to take their companies private. The Chinese government jumped into the fray by actively encouraging them to do so, even going so far as to provide upwards of $1 billion in state financing to assist them.

Sohu, however, seems one that will be wedded to U.S. markets, at least for the time being.

The best offense is a good defense
With Kentucky Sen. Rand Paul mounting a 13-hour filibuster opposing President Obama's tacit acknowledgment he could use drones to kill Americans on U.S. soil, it's not a good time to be a drone maker as AeroVironment has found out. But worse than the rhetoric is the delays in government spending on the unmanned vehicles that the defense contractor said would cause $100 million in planned revenues to evaporate from its financial statements .

Now with sequestration in full swing and the country not coming apart at the seams, the tens of billions of dollars in across the board in spending cuts coming from the Defense Dept. budget could make the rest of the year even more difficult for AeroVironment.

While spending cuts in Washington, D.C., are different than those you'd have to effect to balance your checkbook -- politicians call a lower than expected increase in spending a "cut," unlike actually lowering the amount spent -- AeroVironment will actually see reduced revenues flowing its way and has cut back its sales guidance for the year. Now it anticipates generating $230 million to $250 million in revenue, down from its previous forecast of $348 million to $370 million. Profits are also expected to be affected, and the drone maker slashed $0.30 to $0.50 per share from its estimates. 

While Sen. Paul was roundly praised for droning on for an extended period of time, the lack of consensus in Washington regarding the best way to approach our country's fiscal situation means AeroVironment may find its stock grounded for some time to come.

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Related Tickers

8/29/2016 4:00 PM
ACUR $1.64 Down +0.00 +0.00%
Acura Pharmaceutic… CAPS Rating: ***
AVAV $29.84 Up +0.34 +1.15%
AeroVironment CAPS Rating: ****
SOHU $41.98 Up +1.74 +4.32% CAPS Rating: ***