Lousy economic data plagued the Dow on Friday, sending the index tumbling 124 points, or 1%. The economy created only 80,000 jobs in June, which was well short of estimates. Compared to an upwardly revised 77,000 created the month before, the situation is stagnating. Yet some companies did manage to do even worse, plunging lower by double-digit percentages.
But let's see whether they had good reason to drop, as sometimes panic-fueled declines can sometimes make for excellent buying opportunities.
CAPS Rating (out of 5)
A demand economy
According to the market analysts at IDC, the big news is in "big data" -- the process of helping businesses get a handle on the information flowing into their operations. That's where the real growth will be, with big-data technology and services growing from a $3 billion industry in 2010 to almost $17 billion by 2015, or a 40% compounded annual growth rate. That is, if Europe doesn't suck everyone down first.
Informatica plummeted almost 28% after it said it failed to respond quickly enough to falling demand on the Continent and preliminary second-quarter financials showed a big drop in sales and earnings. That spooked industry peers like Teradata, which fell 10%; MicroStrategy, down 11%; and QLIK Technologies, off 12%. Even big data's big dog, Big Blue -- IBM -- was down 2%, though its size and reach likely had just as much to do with the broad economic numbers as what Informatica's results heralded for its own operations.
Trucking giant Navistar capitulated to EPA demands and said it would abandon its alternative -- and cheaper -- emissions technology in favor of that used by the rest of the industry. Tough new air quality regulations put Navistar's trucks out of compliance and buyers became leery of purchasing the vehicles. Fitch Ratings recently downgraded the trucker's credit and said more downgrades could be forthcoming if it didn't resolve the problem in a hurry. So the switch will eventually help down the road, but it will also be expensive and means the company will fall further behind the rest of the industry.
Hanging up on growth
I noted the other day that analysts believed the network equipment market had further to fall, and that the economic headwinds were just starting to show up in the results of Riverbed Technology, Aruba Networks, and Juniper Networks, so it probably shouldn't come as such a shock that Acme Packet was going to feel the crunch, too. Yet its announcement that it will miss second-quarter expectations sent shares of the equipment maker reeling. Telecom spending is coming in lower than anticipated, but that's a refrain that's starting to wear thin for some investors and they're ready to hang up on the equipment maker.
Also wearing thin are the promises being made by advanced battery maker A123 Systems, which I've been saying is on the road to ruination but is burning through cash faster than a Tesla battery burns up its car. So Friday's news, in which A123 said it had as little as four months' worth of cash left, underscored the threat to its solvency, even though it also said it was moving to raise $39 million in cash.
A123 said it had cash and equivalents of $68 million at the end of May, as well as $40 million in restricted cash. But during the first five months of the year, it also said it was using on average $18 million to $25 million per month in net operating and investing cash flows, so it could run out of money before the end of the year.
Obviously, I've been bearish on A123 for some time, believing the electric vehicle market won't be a mass market anytime soon, certainly not within enough time for the battery maker to survive. While 84% of the nearly 500 CAPS members rating A123 believe it will be able to eventually outperform the market indexes, the low, two-star rating (out of five) they've assigned it suggests they believe there are better places for your money.
Tell me on the A123 Systems CAPS page or in the comments section below whether you agree it can still beat the Street or, like me, think it's just a matter of time before it crashes and burns.
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