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.
Will Mr. Bojangles dance again?
Let's start with the best-named company this side of the Volga River: recently megamerged paper pulper abitibibowater
Abitibi-Consolidated and Bowater Inc. joined forces last October and took on a mouth-filling new name -- I can't decide whether it's a song or a meal. Be that as it may, the combined company expects to save $375 million a year in synergistic cost cuts and to sell off some $500 million's worth of assets this year. In fact, they became superfluous after the deal. Some $280 million of that goal still lies ahead. Then there's another $250 million of saleable assets on the auction block in 2009, including a paper mill in South Korea.
CEO David Peterson clearly realizes that his company is in very negative territory right now and hopes to position it as "the industry's great turnaround story." The stock has lost around 68% of its value since being introduced last fall but actually gained more than 10% last week in a strong show of support from shareholders and confidence in Peterson's strategy.
On the other hand, it's a perennial one-star stock in our CAPS community, worse than archrival International Paper's
All that, and a bag of chips
We're moving on to the semiconductor industry, where nothing ever stands still long enough to bore you. Chips for computer graphics and motherboard platforms are the bread and butter for NVIDIA
The company reported earnings of $0.36 per share on $1.15 billion in revenue. The 37% year-over-year sales growth was in line with the average analyst's hopes and dreams, but the earnings figure fell short by $0.02 a share.
CEO Jen-Hsun Huang said that the transition to a new line of chip designs "was challenging and dragged [NVIDIA's] margins." The new product line performs better than the old one, and it's cheaper to make. That's why the aging inventory had to be sold off at steep discounts, as the obsolescence was immediately obvious.
Hardware enthusiasts currently enjoy very cheap and very good graphics chips from both NVIDIA and AMD
But Huang doesn't worry too much about that segment. System builders often install a better graphics card on motherboards with integrated graphics already installed, because the built-in pixel processors don't cost more -- it's a freebie. That's why the high-end and midrange performance wars matter so much in this market. And right now, NVIDIA is winning. Stay tuned for the next wild turnover, though.
Six Flags over Wall Street
Let's end this ride in a fun location. Theme-park operator Six Flags
You might blame a tough economy, perhaps. But consider that Walt Disney
CEO Mark Shapiro still called this an "improvement in first-quarter performance. ... With a new attraction in every one of our theme parks, we are poised to deliver a memorable experience for the entire family this summer." Sure thing, Mark. But can you turn the park traffic into profits this time? The proof will be in the pudding.
End of the road
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.
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