Why Hovnanian Enterprises, XOMA, and Yongye International Tumbled Today

The stock market finished mostly unchanged amid no new news on the international front, but these stocks suffered substantial losses today. Find out what cause their fall.

Mar 5, 2014 at 8:31PM

Having seen a big drop on Monday and a big jump on Tuesday, stocks took the Goldilocks route Wednesday, as the broader market finished little changed as investors struggled to guess which direction macroeconomic and geopolitical issues will push the stock market next. For shares of Hovnanian Enterprises (NYSE:HOV), XOMA (NASDAQ:XOMA), and Yongye International (NASDAQ: YONG), though, the day was ugly, with those three stocks seeing substantial declines.

Hovnanian fell 10% as the homebuilder reported fiscal first-quarter earnings results that included a doubling of its year-ago loss and just a 1.6% rise in revenue. Deliveries fell more than 4% and net contracts dropped almost 11%, and although Hovnanian reported that its contract backlog had risen both in dollar-terms and number of homes, bad weather this year compared to a favorable selling season last year took its toll on the homebuilder's results. CEO Ara Hovnanian expressed his belief that conditions would improve during the rest of 2014, but investors weren't convinced and sold shares off in response. The drop could prove to be a bargain opportunity, though, if better weather reverses the troubling housing environment. But other factors could cause housing to cool off as well, especially if Fed tapering leads to higher interest rates later this year.

XOMA plunged almost 28% after the biotech company chose not to move forward with late-stage studies of its key osteoarthritis drug gevokizumab. All isn't lost for XOMA on gevokizumab, as the company might have the potential to divide its original target population into segments in an effort to find a group for which the drug is more effective, and the drug might be useful for other treatments. Nevertheless, with investors having had high hopes for the study, XOMA needs to find a new strategy quickly in order to calm shareholders' fears. Moreover, with the biotech sector more broadly having gotten a lot of attention from momentum investors -- and with many stocks in the industry having seen huge price increases -- the tolerance for even temporary failure is relatively low.

Yongye dropped nearly 11% after the Chinese crop-nutrient company said that shareholders had rejected a proposal for the company to go private. The proposal would have paid shareholders $6.69 per share in cash, but some investors argued that the deal would have essentially allowed the buyers to take advantage of low valuations for Chinese small-cap stocks in general and Yongye in particular. With today's rejection, those investors will have a chance to see whether their long-term support of the company will pan out.

Will these stocks bounce back?
Good stocks can come back from setbacks. But there's still a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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