Why Did My Stock Just Die?

Here we go again, experiencing dramatic swings in the Dow Jones Industrial Average, which closed down 138 points yesterday nearly wiping out the recovery it had made the day before. The index was shot down largely by Bank of America (NYSE: BAC  ) missing its earnings estimates, even though it witnessed a 57% surge in deposits from the year-ago period and profits roared ahead to $0.20 a share from $0.03 a share.

While mortgage banking income was down year over year, the greater sin committed was missing analyst profit expectations of $0.22 per share. An argument could be made that perhaps Wall Street was a bit too exuberant in its outlook for the No. 2 banking giant, but it could also be excused for being so, since financials have been the shining star of the markets, with B of A, JPMorgan Chase, and Goldman Sachs, all benefiting from the Fed's pumping $80 billion or so a month into the economy.

Looking at their stocks' performance over the past year, we can see that analysts might have expected Bank of America to continue its meteoric run.

BAC Chart

BAC data by YCharts.

With B of A faltering, Morgan also dropped 3.5%, and Goldman and Citigroup were down 2% or more. Considering the fractured future of the eurozone and the baseless gains made here at home, it may be we're seeing the peak of the financial markets.

A chip so big it's a gouge
Yet even beyond financials, the markets were weak yesterday with more than three-quarters of all stocks listed on major U.S. exchanges declining, in large part on the tremors Apple (NASDAQ: AAPL  ) caused. After audio-chip supplier Cirrus Logic (NASDAQ: CRUS  ) rocked the i-sphere with news of a glut of chips at the slowdown of an unnamed customer (that everyone knows is Apple, since it accounts for 90% or so of its revenues), analysts immediately speculated that that meant there were likely going to be delays in launching new versions of the iPad and iPad Mini. The speculation sent Apple's stock careening 5.5% lower and Cirrus Logic plunging 15%. Other Apple suppliers were also generally knocked down, with TriQuint Semiconductor and Skyworks Solutions falling 3% and 4%, respectively.

Yet it raises the larger concern that Apple is generally losing its hold on the public's imagination, and perhaps the iPhone specifically may be endangered by the rise of Samsung's Galaxy and other Android smartphones. With Apple's earnings due out next week, investors worry there may be some significant gaps that show up, and they've dropped its stock below $400 a share, the lowest level it's been at since late 2011. That might make its stock absurdly cheap -- along with Cirrus Logic's -- but there's the distinct possibility we'll see them both test newer lows yet.

Thanks, now get out!
Dismissing your auditor for questions it raises about the value of your properties and your reserves doesn't exactly instill confidence among investors. Magnum Hunter Resources (NYSE: MHR  ) reported it fired PriceWaterhouseCoopers because it started questioning items in its financial statements that could have a material impact on whether investors could trust what the company's reporting.

Management essentially said, "Trust us, we already know about that stuff and are working on it. You don't need more information to review it." They also said they have plenty of money to meet its debt covenant, and its reserves, and its other estimates are accurate, too.

Oh, OK. Investors are supposed to take management's word for it when their auditor raises potential yellow flags and then gets fired for doing so? Maybe there's nothing wrong with Magnum's numbers, but why wouldn't you work amicably with your auditor instead of giving them the boot? The stock might have fallen 15% yesterday, actually having recovered from the worst of the news when it lost nearly 30% of its value, but I have to question why investors would hang around anyway, and I expect we'll see it drop further.

Ready for a resurrection
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 18, 2013, at 9:42 PM, Pops61 wrote:

    Your views on MHR and PwC are at best vauge and at worst misleading. The management of MHR held a conference call to explain the reasons for PwC dismissal. MHR explained that most issues were a result of an understaffed accounting department and exponential company growth. All of which PwC wanted MHR to make a restatement which was not necessary. Replacing PwC is BDO which is also a well respected bookkeeping firm. MHR has resolved all the issues brought to their attention by PwC. If anyone would like to take the time and read the SEC fillings all the issues and corrective action is published.

  • Report this Comment On April 19, 2013, at 12:52 AM, Khizhim wrote:

    @Pops61:

    "MHR explained that most issues were a result of an understaffed accounting department and exponential company growth."

    What can be said about the management of this business enterprise if their accounting department was so understaffed? Are you reassured by this?

    "MHR has resolved all the issues brought to their attention by PwC."

    Their highly-unusual 11-page SEC 8K form runs on and on and on with endless accounting "mea culpas." They disputed a few of PwC's criticisms, but they seemed to admit many more than they disputed. It almost seems to be laughable that the 8K reports the BOD and top Mgt. have committed to taking a "hands on" approach to their accounting disaster! "Great"! How did this monumental problem occur in the first place?!

    Company CEO Gary Evans made an emphatic statement in behalf of the company during a "conference call" to more than 500 participants at 4:30 PM EDT on 4-17-13, Wed., but he took NO questions. Did he prove that all of PwC's complaints had been eliminated? His comments were prospective! He stressed that the company had greatly expanded its accounting capability in the last 6 months, that it had increased its accounting staff from 15 to 42, and had hired many top personnel in the department. Yes, that does seem to suggest that they'll be able to reform their ways, but doesn't that remain to be seen?

    They're on a calendar year basis. They don't expect to report their 10K until 60 days after their 8K filing of 4-10-13, which suggests sometime around 6-10-13, and they don't expect to report their 10Q for Q1-13 until a month after that. They have three issues of preferred stock on which they're prohibited from paying dividends until both performance reports have been filed.

    Their 11-page "confessional" 8K, "Changes in Registrant’s Certifying Accountant," is at:

    http://b2i.api.edgar-online.com/EFX_dll/EdgarPro.dll?FetchFi...

    The document was released after the close of the market on 4-16-13, Tuesday.

    They offer an audio recording of their phone announcement of 4:30 PM EDT on 4-17-13, Wed. at:

    http://www.magnumhunterresources.com/MHR_Change_In_Auditor_C...

    Seeking Alpha offers a text transcript of the call at:

    http://seekingalpha.com/article/1351771-magnum-hunter-resour...

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