Why Did My Stock Just Die?

Your stock just took a nosedive -- but don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit:

Stock

CAPS Rating
(out of 5)

Yesterday's Change

Gulf Resources (Nasdaq: GFRE  )

***

(30.1%)

Travelzoo (Nasdaq: TZOO  )

*

(14.8%)

Anika Therapeutics (Nasdaq: ANIK  )

****

(10.2%)

The markets have overcome the decision by Standard & Poor's to revise the country's debt down and focused instead yesterday on the big earnings reports companies turned in yesterday. Stocks jumped 115 points yesterday, or almost 1%. So stocks that went down by even larger percentages are pretty big deals.

The devil's in the details
Oh, here's something completely different: A Chinese small-cap stock is being accused of fraud. Now where have we heard that before? This time it's Chinese bromine maker Gulf Resources, no stranger to these sorts of charges. Last December it rebutted anonymous reports of financial impropriety; this time around, it's being accused of being an out and out fraud in that it's actually a secret subsidiary of a company owned and operated by its CEO.

Gulf is one of the largest bromine producers in China; the state issues only six licenses, and the other five holders generally produce bromine for their own use. That pretty much gives Gulf Resources the market all to itself. Bromine is used in flame retardants, chemical manufacturing, and even the oil and gas exploration industry and international peers like Albemarle and TETRA Technologies  (NYSE: TTI  ) finding new strength globally.

While investors may have thought Gulf put these allegations behind it, the stock has been in decline since they first arose and it trades some 77% below its 52-week highs.

It seems like a good way to invest in Chinese reverse mergers is simply to short them all. ChinaRTO is a tracking portfolio that simply thumbs-down all Chinese RTO stocks. While it has achieved some good calls betting against Gulf Resources and so-called rare earth elements miner China Shen Zhou Mining (NYSE: SHZ  ) , its rating has been hurt by starting late against such losing investments as RINO International and Fuqi International, both of which have decimated investors by becoming literal penny stocks, although they have bounced off their absolute lows.

If you want to see how Gulf Resources responds to the latest accusations against it, add the stock to your watchlist.

Cracks in the foundation
Web travel and entertainment deal purveyor Travelzoo enjoyed a two-day ride higher after a better-than-expected earnings report, but after a 36% increase in value where its stock broke through the triple-digit level, investors decided to take some profits. Even so, the stock remains 16% above where it began the journey.

Yet there might be more down days in its future. India's online media portal Rediff.com (Nasdaq: REDF  ) just launched a group deals program that might eat into Travelzoo's business, and Facebook is looking to glom onto the Groupon effect. It seems everyone wants to offer you a deal these days.

But if it is just a profit-taking decline, then CAPS All-Star cecamado1 sees no reason it shouldn't reverse course in short order: "going down due to profittaking... This is a 120-150 dollar stock. Lets Go!!!"

Add Travelzoo to your watchlist and see whether the stock can offer you an even better deal soon.

Patently offensive
Easy come, easy go. Investors in Anika Therapeutics should be used to this roller-coaster ride by now. After a facility inspection snafu with the Food and Drug Administration sent its shares falling, the stock rebounded as investors figured the costs of the new plant were actually worth it. Sure, it will experience reduced revenues from a Bausch & Lomb contract and that hoped-for Johnson & Johnson (NYSE: JNJ  ) buyout offer has never materialized, but what really hits shares was Genzyme suing Anika for patent infringement. Genzyme has a couple of suits against Anika that were inherited by sanofi-aventis inherited when it bought the biotech earlier this month.

With 97% of the CAPS members rating Anika still believing it will outperform the broad market averages, you can share your thoughts on the Anika Therapeutics CAPS page about whether this is a patently obvious investment.

Ready for a resurrection
Just because your stock has taken a beating doesn't mean it's going to roll over and die. Markets are known for overreacting. A closer look on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.

Johnson & Johnson is a Motley Fool Inside Value pick and a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Johnson & Johnson. Alpha Newsletter Account, LLC owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in the article. You can see his holdings here. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 23, 2011, at 9:47 PM, AcheronRecords wrote:

    Just wanted to add that the launch of Rediff.com won't eat into the profits at TZOO. They sold their operations in Asia as of November of 2009. Though they claim to have 23 million subscribers that number is closer to 20 when you count the subscribers they make money on (North America and Europe)

    I think that the dangers to Travelzoo's business are overhyped. The biggest opportunity for them is in Europe and it is growing fast.

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