3 Stocks That Missed the Mark

These three companies just didn't live up to Mr. Market's expectations last week. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down.

Today, we're looking at one five-star stock and two Foolish newsletter picks that failed to impress the Street last week. What's up?

Tough as nails
First up is Commercial Metals (NYSE: CMC  ) , a company that produces and recycles steel and other commodity metals. (The Motley Fool CAPS investor-intelligence community has given the stock its top rating of five stars.) Commercial came up with earnings of $0.51 per share on $2.9 billion in sales, and fell far short of the Wall Street analyst consensus of $0.71 in earnings per share. It was a mixed bag compared to last year, when the company saw $0.82 of profits on $2.2 billion of revenue.

Fellow Fool Toby Shute said that these results really are stronger than they seem at first glance, as unusual accounting rules hide the tremendous benefits of rising scrap metal prices. Mr. Market saw through the smoke: Commercial Metals' stock is up more than 5% over the past week, even as the broader S&P 500 lost 3%.

As long as the global construction boom continues -- and in spite of the domestic housing weakness -- it seems that metals specialists like Commercial, Gerdau Ameristeel (NYSE: GNA  ) , and Steel Dynamics (Nasdaq: STLD  ) should continue their current skyward trajectories. Commercial's stock has climbed more than 10% the past year, but Ameristeel outpaced it with a 22% gain, and Steel Dynamics is boasting an 85% one-year return. Food for thought.

Tasty dips
Motley Fool Stock Advisor recommendation FedEx (NYSE: FDX  ) is a different story. The shipper and packer is not used to losing money, but it reported a quarterly loss of $0.78 per share last week -- its first red ink in 11 years.

An $891 million writedown, mostly related to goodwill, pushed FedEx down to a $241 million net loss, so you could blame the entire debacle on the Kinko's acquisition of 2003. That's right -- ill-advised deals can come back and bite a company five years later.

Rising fuel prices and weakening consumer confidence don't help, either. While the Kinko's problem is uniquely FedExian, fellow shippers like United Parcel Service (NYSE: UPS  ) should be feeling the other painful effects, too. Watch for that report in about a month, and don't expect great tidings.

FedEx remains a well-managed business with a massive market footprint and some unique growth opportunities here and abroad. Now, you can buy into all of that at a forward P/E ratio of just 12.9. The little value investor in me has started to salivate ...

Used-truck blues
Finally, we're casting a glance at used-car retailer CarMax (NYSE: KMX  ) , a Motley Fool Inside Value pick. 3% year-over-year sales growth to $2.21 billion led to 55% lower earnings, or $0.13 per share. Unit sales were up despite lower foot traffic in the stores, but lower selling prices and higher administrative costs put some serious hurt on the bottom line.

Unsold inventory is becoming less and less valuable every day, and CarMax wrote down its trucks and SUVs by a staggering 25% in these three months alone. Time for a Toyota (NYSE: TM  ) Prius, America? I used to be astounded by the lack of massive SUVs on the streets of Stockholm whenever venturing back home, but that was when Swedish gas sold for about $8 a gallon. If we get anywhere close to that level here, public transportation and ultra-compacts might pick up some steam.

As for CarMax, the company is not ready to change its strategy or business direction, and prefers to wait for better times "when there is a more stable outlook for the economy and we have better visibility on trends." Oh dear. I'd hold off on buying stocks under management that refuses to take proactive action when there is a clear need to make changes. It's a brave new world -- wake up to it.

Coda
Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps, and which ones are stuck in the mud for real.

Are you seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at the Motley Fool Inside Value newsletter service are standing by to help you find great stocks at ridiculously low markdowns. Try a 30-day trial subscription to see whether bargain-hunting is right for you. United Parcel Service is a Motley Fool Income Investor selection. CarMax is a Motley Fool Inside Value pick. FedEx is a Motley Fool Stock Advisor recommendation.

Fool contributor Anders Bylund holds no position in the companies discussed above, and rarely ships used cars to the recycling yard by parcel post. The Fool has an ironclad disclosure policy.


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