Why Did These 2 Stocks Fall Flat?

The Dow Jones Industrial Average rallied sharply higher yesterday, closing above 13,000 again as earnings looked better for a number of businesses. But with the companies below going down hard, first let's see whether they had good reason to drop. Sometimes, panic-fueled declines can make excellent buying opportunities.

The markets soared 194 points, or 1.5%, so stocks that went down by larger percentages are pretty big deals. These two stocks fell hard; let's see if there's anything to redeem them.

Stock

CAPS Rating (out of 5)

Friday's Change

Telecom Argentina (NYSE: TEO  ) ***** (10.3%)
magicJack VocalTec (Nasdaq: CALL  ) * (8.1%)

Source: Motley Fool CAPS.

What's yours isn't mine (anymore)
"No man's life, liberty, or property is safe while the legislature is in session," an aphorism usually attributed to Mark Twain talking about Congress, could also be applied to certain South American countries.

No longer is it just Venezuelan strongman Hugo Chavez riding roughshod over the rights of business owners. Now Argentine leader Cristina Kirchner has seized the assets of Spanish oil giant YPF (NYSE: YPF  ) . If she's willing to make an international incident out expropriating the property of a foreign company, then no private property is safe in the country, and it helps explain why Telecom Argentina is falling in the wake of the news.

The telecom giant has been feeling the jackboot on its neck and was pressured by the government into suspending its dividend, a move that will affect Telecom Italia, which owns nearly a quarter of Argentinean counterpart. There are plenty of people who can see the writing on the wall of what's to come, and Spain's Telefonica (NYSE: TEF  ) , with a significant presence in the country, could be the next domino to fall.

Such are the hazards in doing business with tyrants. ExxonMobil and ConocoPhillips found that out when Chavez nationalized almost every industry in the country in an effort to consolidate power. Kirchner appears to be following in his footsteps, and any company doing business in Argentina today is at risk.

I'm rating Telecom Argentina to underperform on CAPS just as I did YPF last month, when Kirchner started agitating to occupy its offices. Telecom Argentina still has the confidence of most CAPS members at the moment, but add the stock to your Watchlist to be notified when the strongwoman comes knocking on the door demanding the keys to the place.

Hear ye! Hear ye!
Maybe business really is that good, but magicJack VocalTel seems to go on a bit much about it. Perhaps investors are getting fatigued by all the hype.

Last week, the VoIP provider reported preliminary first0quarter results that touted all-time record revenues and said it will trounce analyst earnings expectations, and shares jumped nearly 11%. A week later, it announced that it expects to grow revenues at 20% to 30% annually through next year, with earnings forecasted to be as much as $2.50 per share at the end of 2013 -- 50% higher than what Wall Street is estimating.

On cue, the stock jumped again, this time by just 5%, but the next day it fell by 8%. On the heels of its chairman's resignation from the board, maybe the VoIP felt the need to get some excitement back in its stock. After hitting $28 a share, shares have given back about 17%, though that's decidedly better than its other consumer-oriented rival, Vonage, which is down more than 60%.

Some have made much out of the fact that one of magicJack's directors has sold $1.4 million worth of stock the other day, but he's been selling since at least the beginning of the year through a planned strategy. Although the most recent sales are outside that program, it was partially made up for by a half-million-dollar purchase by the director who will probably takeover as chairman. As Peter Lynch noted, insiders can sell for any reason, but they typically buy only for one: They think the stock is going up.

That doesn't mean I'm going to change my underperform rating on CAPS, as I get the same feeling held by gameguru that magicJack is just a tad too self-promotional. Besides, I believe that 8x8 (Nasdaq: EGHT  ) , a VoIP shop that focuses on enterprise-level customers, has a better opportunity ahead of either magicJack or Vonage.

But tell me in the comments section below or on the magicJack VocalTel CAPS page whether you think there's a reason not to hang up on this sale pitch, and then add the stock to your Watchlist to be alerted to the next hyperbolic press release to be issued.

Ready for a resurrection
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Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of ExxonMobil. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

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 19, 2012, at 7:09 AM, VoIPFool wrote:

    Maybe there's a bit too much hype from MagicJack, but maybe it's excitement. I am buying the stock on the dips because I have been a MagicJack user since March of 2008 and had been a Vonage user since January 2004. Magicjack is an innovative technology that is serving me, my family and friends very well.

    I currently have the MagicJack app on my iPhone; I am an at&t subscriber on the minimum calling plan and I rollover all 450 minutes every month; I simply don't need them; I use the MagicJack app exclusively.

    Most people I talk to about MagicJack simply believe it is too good to be true but when I demonstrate it to them they're immediately sold. We're still early in the adoption cycle; once the idea catches on that you can use MagicJack on your smartphone and never again have to worry about minutes I believe you'll see an acceleration of adoption.

    Longer term I believe MagicJack is vying for real estate on mobile devices, which I believe would enable a real alternative to tradition calling plans.

    I have a background in telecom engineering, marketing, and sales and have been intimately involved in the internal conversations relative to the viability of VoIP at all the major US carriers and many others. I have participated in VoIP deployments from as far back as 1999.

  • Report this Comment On April 20, 2012, at 12:23 PM, kwstiegert wrote:

    CALL is an interesting company. Unbelievably low price point for a land-line ($20), improved marketing program now focused on retail outlets Best Buy, Walgreens, Walmart and Radio Shack, and a good product that works as well as any other VOIP product. The complaints about service all seem related to the quality of the ISP and the selected speed. I installed MJ+ in an hour, used some of the savings to increase the home internet speed to 30mbs and pocketed the difference ($20/mo). I believe the hype for the following reasons: 1) word of mouth in poor U.S neighborhoods will have a significant role in selling this product, 2) families with a land line but no internet can now switch to VOIP/Internet for about what they currently pay for phone. 3) new apps for android and the MJ-Wifi will expand and solidify current user base, and it will allow families to reduce the minutes in cell contracts, 4) firm has hired better management of late and has got away from goofy ad campaigns that do not exude product confidence, 5) wages in families without college degrees are not rising and in many cases, have dropped. These families with more time and less money will invest in money saving ideas like the MJ+.

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