It was another down day for the Dow yesterday, its sixth straight losing session, though it could have been worse as it tried to stage a late-day rally on hopes of a new round of quantitative easing. Yet over that six-day time span, the index lost 331 points, or 2.5% of its value. Of course, some companies did manage to do even worse, plunging lower by double-digit percentages just yesterday alone.
But let's see whether they had good reason to drop, as panic-fueled declines can sometimes make for excellent buying opportunities.
Yesterday's % Chg.
CAPS Rating (out of 5)
North American Palladium
The bricks-and-mortar electronics superstore business model is on the verge of become a nostalgic memory. Circuit City's demise a few years ago wasn't the herald of an opportunity for Best Buy, Conn's, and hhgregg to gain market share, but in reality was the vanguard of what each of them could expect in their own futures. Yesterday's earnings announcement showed that hhgregg is quickly moving in that direction after saying profits were falling hard as consumers preferred shopping at Amazon.com. The loss of more than a third of its market cap indicates it is being plagued by the same problems that have beset Best Buy, as critics contend it has become Amazon's showroom. Consumers test out products in the stores and then buy them online at the e-tailer. hhgregg's future looks rather dim indeed.
Losing its sheen
Metals might have had a down day with shares of North American Palldium, Goldcorp, Barrick Gold, and Yamana Gold all falling in value, but the reasons behind the decline and the severity of the drop couldn't have been more stark. While Barrick and Yamana eased back 1% or so, Goldcorp was down 10% because of problems at two of its mines that will curtail production. The gold miner said it expects to produce 2.35 million to 2.45 million ounces of gold, down from a previous estimate of 2.6 million ounces, while its silver output was also reduced to a range of 30 million to 31 million ounces from 34 million ounces. That's got to hurt more at a time when quantitative easing will likely pressure gold's value anyway.
The palladium miner, on the other hand, announced its intention to issue $43 million Canadian in convertible notes, which the market likely saw as diluting current shareholders. With the metal used most in automotive exhaust systems, it's counting on the industry making a comeback to boost demand, but with rival Stillwater Mining up 1.3% yesterday, it's clear the offering by NAP was weighing heavily on the stock. As a shareholder, though, I'm still counting on the miner making a comeback yet.
Solid-state-drive maker OCZ Technology plunged because a components shortage reduced quarterly revenues. Analysts said that without the parts shortage, the drive maker's revenues could have been as high as $140 million instead of the $113.6 million they ultimately turned out to be -- and that was below the $115 million analysts had forecast. But this isn't a company-specific problem, as Seagate Technology just revised its guidance because post-flood Thailand is still recovering and this has affected shipments. With the economy still affecting customer decisions, Seagate had to reduce its expectations for the coming quarter and year. As a result, I'm confident OCZ will be able to bounce back, and I'm maintaining my outperform rating on CAPS.
A chip so deep it's a gouge
Similarly, it's not so much anything chip maker Silicon Motion did, but rather that its industry is feeling great pressure after Advanced Micro Devices issued up a lousy earnings report the other day. Couple that with chip-equipment maker Applied Materials also offering a gloomy assessment of the immediate future and you have a semiconductor industry stumbling over itself.
I'm finding the sell-off in SiMo's stock to be a buying opportunity. Earlier this year it was socked because of soft demand for memory cards other than those used by OEMs. That segment has remained strong as revenues rose 48% and profits were up 83%, and with smartphone makers accounting for more than a quarter of its revenues in 2011 (28% to be exact), I'm guessing we'll see similar strong results in the current quarter. Samsung is gaining on Apple in market share everywhere in the world, and as its latest Android phones come out and gain popularity, that's only going to increase. I expect SiMo's earnings to be equally impressive, even if management is still expecting end-user demand for its memory products to be weak.
More than 780 CAPS members have weighed in on Silicon Motion, and like me, 97% of them see it still being able to beat out the broad market indexes over the long haul. But tell me on the Silicon Motion CAPS page or in the comments section below whether you agree it can still beat the Street, or whether you think it will be gripped by inertia and, now that it's in motion -- and on a downward trajectory -- it will continue that way.
Ready for a resurrection
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Fool contributor Rich Duprey owns shares of Seagate Technology, North American Palladium, Best Buy, and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Best Buy, Amazon.com, and Apple. Motley Fool newsletter services have recommended buying shares of HHGregg, Amazon.com, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.