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 beaten down.
Earnings season has started in earnest, so we've got some brand-name stocks for you this week.
Flying too close to the Sun
First up is aluminum producer Alcoa
Aluminum prices coasted skyward over the last couple of years, but then did their best impression of Icarus and fell to earth this winter amid a flurry of singed feathers and a gentle rain of melted wax. A pound of aluminum now costs about half of the mid-2008 highs. Alcoa chief Klaus Kleinfeld has "streamlined" the company's portfolio to focus on areas "where Alcoa is the recognized leader," among other cost-control measures.
Fellow Fool David Lee Smith points out that lesser aluminum mavens like Norsk Hydro
Buyout or bust!
Let's move on to some hot biotech action. Cancer-fighting drug designer Genentech
Genentech has received a couple of crumpled love notes from Swiss pharma prodigy Roche Holding (OTC BB: RHHBY.PK), including a $47.3 billion buyout offer last July. Roche says it's still interested in Genentech, and it darn well should be -- you don't own 56% of a company you despise, right? Some analysts expect another merger bid in the $100-per-share range.
As fellow Fool Dr. Brian Orelli writes, investors are probably best off "to value Genentech based on its growth potential as an independent company and then be pleasantly surprised if there's a windfall from an acquisition." Its portfolio of cancer-busting blockbusters and deep pipeline show plenty of promise, and our CAPS community can tell you more about the valuation implications.
Baa, baa, black sheep
Our last underperformer of the week is also the biggest. Megabank Bank of America
These terrible results include Countrywide Financial, but not Merrill Lynch, because one deal closed last summer but the other on New Year's Day. It's bad enough that Morgan Housel, another of my esteemed Foolish peers, called for CEO Ken Lewis' head on a silver platter: "Make no mistake about what happened here: Lewis jumped the gun with Merrill Lynch, and shareholders are now paying dearly. On top of the $33 billion already paid for the broker, let's tack on the $4 billion in preferred stock (plus $320 million a year in associated dividends), $400 million in warrants, and lost income from having to ax common shareholder dividends. Ah, the gift that keeps on pillaging."
Merrill Lynch, on its own, saw a $15.3 billion loss in the fourth quarter, though the government's $20 billion bailout contribution balances out that shortfall very nicely. On your dime and mine, mind you. Citigroup
At some point, you'd think the banks surely must bounce back. But from where I sit, rock bottom still looks far, far away.
Further Foolish Reading:
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.
Fool contributor Anders Bylund holds no position in the companies discussed this week, and isn't too worried about cancer drugs at the moment. Norsk Hydro is an Income Investor selection, whereas Bank of America is a former one. The Fool has an ironclad disclosure policy, and you can see his current holdings for yourself.