Despite the doom and gloom still present in European finances, the market decided to focus instead on better-than-expected domestic economic news and posted its second day of gains yesterday. The Dow Jones Industrial Averages rose 92 points, or almost 1%, yesterday after the durable goods report bounced back, showing gains in May after two straight months of decline, and pending home sales rose 6%.
Yet some companies managed to go in the other direction, falling by double-digit percentages. Let's see whether they had good reason to drop as sometimes panic-fueled declines can make for excellent buying opportunities.
A demand economy
Biofuels maker Gevo was one of the worst-performing stocks yesterday after it announced plans to raise as much as $100 million in a secondary stock and debt offering. While investors tend to sell off shares in such situations, fearing the dilution that comes with them, they may have reacted more dramatically this time since Gevo's shares had been on a roll over the previous week, rising more than 40% after the company was cleared of infringing on a rival's patents. I'm not a big proponent of biofuel stocks, but with the proceeds of this offering going to retrofit a plant and pay down debt, the new, lower price may be an attractive one.
Biopharmaceutical Omeros also was socked by plans to raise cash in a $30 million secondary offering. Having priced its shares at $10.25, the market felt there was no need to continue trading them above $13, where they had been before the news. But where Gevo will be using its cash to prepare itself to be able to produce its biofuels, Omeros is using the proceeds for the more amorphous "general corporate purposes," though funding for phase 3 clinical trials for its drugs OMS302 and OMS103HP are also included. Seems a bit more tenuous to me.
It wasn't a stock offering that sent shares of Osiris Therapeutics tumbling yesterday. In fact, it wasn't anything at all. There was no news to speak of concerning the biotech, but in the last minutes of trading the stock plunged. The stem cell researcher has enjoyed some large gains in recent weeks after its therapy Prochymal was approved in both Canada and New Zealand for the treatment of acute graft-versus-host disease in children.
The Fool's Brian Pacampara had published a piece yesterday morning questioning whether Osiris stock was "poised to plunge," highlighting one CAPS All-Star's opinion that with the biotech's high cash burn rate it will likely need to tap the public markets again. Even after yesterday's fall, Osiris is still trading 75% higher than where it was a month ago.
There was also nothing to account for the dramatic fall in ValueVision Media stock. Home shopping specialist ValueVision targets a mass consumer market as QVC and HSN do, offering jewelry, watches, home and electronic gadgets, and beauty, health, fitness, and fashion items. But the economy may be catching up as sales fell 5% last quarter with consumer electronics plunging 76%.
Aftermarket auto parts supplier O'Reilly Automotive was also stung by falling sales. It warned revenues and profits would not live up to its previous expectations after June's same-store sales dropped following an uptick in May. O'Reilly said earnings would come in at the low end of its previous per-share guidance of $1.13 to $1.17. The dour outlook also sunk industry peers AutoZone, Genuine Parts, and Advanced Auto Parts.
Recently, aftermarket lead-acid battery maker Exide Technologies said the warm winter had sapped its strength. It relies upon cold weather to kill batteries and jump-start sales. However, with new car sales slackening, there's hope consumers are actually holding onto their old vehicles longer, meaning they'll eventually need replacement parts for them. I'd expect O'Reilly and the others to bounce back soon.
And when you think about it, the auto parts supplier didn't really say anything it hadn't already planned for: Sales were coming in a smidge below the range it previously forecast and profits still made their forecast. As CAPS member stocky5 points out, "Management has done an excellent job of guiding analyst expectations." I agree the sell-off is overdone and will be rating O'Reilly stock to outperform the market indexes on CAPS.
Tell me on the O'Reilly Automotive CAPS page or in the comments section below if you think this drop represents a good entry point.
- Add O'Reilly Automotive to your Watchlist
- Add Gevo to your Watchlist
- Add Omeros to your Watchlist
- Add Osiris Therapeutics to your Watchlist
- Add ValueVision Media to your Watchlist
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.