Investors Did a Run on These 3 Stocks

With the terms it placed on Cyprus, the eurozone has its template for future bailouts in place, and depositors in countries with their own shaky finances will be wary about bearing the brunt of the next crisis.

Some stocks had shaky weeks of their own, even though they're unrelated to the global financial problems. Don't to running over the cliff with them like a bunch of lemmings, as this could just be a temporary situation. So let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.

Falling off a cliff
Shares of iron ore miner Cliffs Natural Resources (NYSE: CLF  ) fell 14% earlier this week to levels it hasn't seen since the recession, as analysts at Morgan Stanley and Credit Suisse drastically cut their price targets. Following the miner's just-as-dramatic slashing of its dividend by 76%, the analysts at both investment houses cut the stock by more than 60% from their previous price target. Morgan Stanley dropped Cliffs' shares to $14 a stub, and Credit Suisse took it down to $10.

On the bright side, Goldman Sachs raised its outlook from "sell" to "neutral," but that was hardly enough to outweigh the pall hanging over the miner. In general, analysts expect its iron ore business to be cut in half in 2013 and its pricing power to come under tremendous pressure. Earlier this month, Cliffs announced that it was idling its Quebec iron ore pellet plant to meet the market's lower demand.

With the global steel industry wobbling despite expectations that Chinese production will increase 4% this year, Cliffs' largest customer, ArcelorMittal (NYSE: MT  ) , is melting down as well. The world's largest steelmaker accounts for 17% of Cliffs' total revenues and a third of its U.S. business and has seen its stock lose a quarter of its value in 2013.

Last fall, I believed that most of the risk had been priced into Cliffs' own stock, but shares are down 58% since then and don't seem to have reached bottom yet. While it amounts to a bit of closing the barn door after the cows have escaped, I'll be closing out my outperform rating on Motley Fool CAPS.

Big pay day
Easy come, easy go, or so say investors in American Apparel (NYSEMKT: APP  ) , which saw their stock jump more than 12% the other day on no company-specific news and then give a good portion of it back for pretty much the same reason. There was, however, an article that appeared in the trade rag WWD that the retailer's chairman and CEO was being richly rewarded this year with a pay increase from $800,000 to $2 million cash. While sales rose 6% in the most recent quarter, company losses narrowed only slightly.

The stock, however, has more than doubled since the start of the year and has nearly tripled from its 52-week low. After the stock wallowed in penny-stock status because of difficult sales that only seem to just be turning around, investors may not appreciate seeing American Apparel's top guy taking so much out of the company just yet.

Packing it in
Shares of luxury luggage maker Tumi (NYSE: TUMI  ) took a vacation this week, falling nearly 6% after it priced a secondary offering almost 9% below where the stock was trading the day before. The selling shareholders include the company's chairman and CEO, Jerome Griffith, as well as the CFO and several senior VPs. The largest seller, though, will be the private-equity firm Doughty Hanson, which even after the offering will remain Tumi's largest shareholder, with more than a quarter of the company's stock. 

The luggage maker reported earnings last week that disappointed Wall Street, despite profits that jumped 30% from the year-ago period. It was its guidance for 2013, however, that sent the stock down, as it expected to earn $0.82 to $0.86 per share compared with analyst consensus forecasts of $0.87 a share. Revenues are forecast to come in at the low end of the analysts' predicted range.

The stock has traded in a fairly consistent band over the past six months, moving between $20 and $24 a share, and the action we saw yesterday suggests that it will continue doing so. With Europe's finances still in disarray, those wanting luxury suitcases may be few and far between.

Ready for a resurrection
Cliffs Natural Resources has grown from a domestic iron ore producer into an international player in both the iron ore and metallurgical coal markets. It has also underwhelmed investors lately, especially after its dramatic 76% dividend cut in February. However, it could now be looked at as a possible value play because of several factors that are likely to remain advantageous for Cliffs' management. For details on these advantages and more, click here now to check out The Motley Fool's premium research report on the company.


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  • Report this Comment On April 01, 2013, at 7:41 PM, jellybeandream wrote:

    I sold MT because I heard on euronews that they had lost their "investment grade" credit rating, and that was important to me. NUE has impressed me more with its management.

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