Finding solace in the Federal Reserve's remarks that the economy was a little bit better than expected, the markets changed course and rose yesterday. But even though your stock took a nosedive, 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.
CAPS Rating (out of 5)
With the Dow rising 178 points yesterday, or 1.5%, stocks that went down by large percentages are pretty big deals.
That's going to leave a mark
Underscoring just how strong Corinthian Colleges'
Career Education, Corinthian, Strayer Education
But enrollments have slid dramatically, and for-profit education companies now face rising costs of regulatory compliance. Apollo Group
Most of these traditional schools are now offering online and continuing education courses, often in remote parts of the globe, that use precisely the same business models that outfits like [the University of] Phoenix are using. Universities finance their traditional programs out of these for-profit enterprises. These schools have a huge leg up on the for-profit colleges: (a) zero taxes on endowment gains; (b) a reputable name/accreditation; (c) government support in the form of subsidies, grants, etc. Meanwhile, the for-profit schools only have tons of research showing that for-profit schools are the equivalent of quicksand for students.
Put Career Education on your watchlist and see whether it will be able to fight for survival with the equivalent of having one hand tied behind its back.
Out of reach
Is anyone really excited about Groupon's pending IPO anymore? Apparently, yes, if reports prove true that it may price higher by a dollar or two over its $16 to $18 current range. You won't find me buying in, though, and I probably should have just downgraded all such stocks the other day, when I noted that ReachLocal had no real competitive moat to protect it. None of these local advertising shops do, and while Groupon may have some name recognition and critical mass behind it, when there are low barriers to entry it makes it tough to survive.
ReachLocal disappointed the market, missing profit and revenue projections and saying the immediate future didn't look all that promising either. I should point out that similarly situated Local.com did surprise to the upside, but that could just be the exception that proves the rule.
ReachLocal also had the added problem of trying to go global when it didn't even have the market in its backyard nailed down.
Disconnecting from growth
A dismal forecast also had investors hanging up on VoIP provider Vonage, even though the company showed third-quarter improvements. It earned $16 million, or $0.07 per share, compared with a loss of $55.4 million, or $0.26 a share, in the year-ago period. And absent one-time charges it would have made $0.10 a stub, but the market focused on its statement that the 9,000 customer defections it experienced this quarter will probably continue at the same pace until the end of next year.
Compare that with the results of 8x8
CAPS member thecashmen thinks consumers would just be better off using Magic Jack since it costs less than Vonage but provides essentially the same service. That view apparently coincides with much of the investment community's thinking, since just 30% of those rating the VoIP specialist think it will beat the market indexes.
Let us know in the comments section below whether you see Vonage rising above the tumult, and then add it to your watchlist to see which way it goes.