Why Did These Stocks Plunge?

After a yearlong recovery in the market, stocks have recently taken a turn for the worse. Despite strong corporate earnings in the first quarter and a rebound in consumer spending, investors are now bracing themselves for what could be a major correction, or even another bear market.

So what happened?

The European debt crisis, which began as a minor issue in Greece, has spread like wildfire to the rest of the European Union. The energy sector has been pummeled as the BP oil spill continues to drag on, taking with it the share prices of almost every company involved with exploration, drilling, or services.

In times like this, it's not odd to see drastic movement in your portfolio -- stocks that move by 5%-10% on barely any news at all. Let's see which stocks plunged on Thursday, and examine whether any logic justified their shifts.

Source: Yahoo! Finance.

Biotech firms take a hit on the chin
Orexigen is a biopharmaceutical company that focuses on the development of treating obesity. One of its main candidate drugs, Contrave, is due for FDA panel review in December, and it's definitely been under the microscope as of late. Yesterday, an advisory panel rejected Vivus' (Nasdaq: VVUS) weight-loss drug Qnexa, stating that it had safety concerns that made it reluctant to open the drug for use by millions of patients. Similarily, Arena has an obesity drug up for review in September, and shareholders are watching the FDA closely. 

Interestingly enough, in today's trading, Arena shares have made back all their losses from yesterday, while shares of Orexigen continue to plummet. This may have to do with observers' general opinion that Arena's drug, lorcaserin, could have fewer safety issues than Contrave.

Broadband's up and down
The last few weeks have been a roller-coaster ride for Canadian Ethernet provider DragonWave. Last week, I discussed the reasons why DragonWave shares were skyrocketing; now this week, we're staring red ink in the face! I imagine investors are a bit wary of the fact that DragonWave derives so much revenue from one customer, Clearwire (Nasdaq: CLWR). In 2009, Clearwire accounted for 77% of sales.

The company recently said that its sales from Clearwire will end up stopping a bit short, with the CEO stating, "Our Q2 guidance reflects the fact that we've now supplied most of the equipment to Clearwire's network build to the end of 2010 in support of the markets it is launching this year to achieve the objective to cover a population area of 120 million people by the end of the year." 

The Foolish bottom line
In the choppy waters of today's market, you have to watch your portfolio carefully -- but be careful to distinguish between random volatility and a true change in fundamentals. If your stocks are jumping all over the radar screen, but your investing thesis remains intact, just sit back and hold on for the ride.