After more than a week's worth of losses, the Dow staged a strong rally and closed out Friday's trading session with a 203 point gain, or a 1.6% jump. That wasn't enough to erase all the losses, but it was a welcome reprieve and was due largely to JPMorgan Chase beating earnings expectations. Of course, some companies managed to do worse, plunging by double-digit percentages. So let's see whether they had good reason to drop, as sometimes panic-fueled declines can lead to excellent buying opportunities.
Friday's % Change
CAPS Rating (out of 5)
|James River Coal |
|Green Mountain Coffee Roasters |
|A123 Systems |
Cleanup in aisle 7
Usually when a company announces it wants to sell itself to the highest bidder, the stock takes off as investors believe they'll be able to get out from under the rock the company has tossed on them. But supermarket chain SUPERVALU did the exact opposite, plunging 50% the first day and dropping another 14% the next. That's because few believe it can make much of itself: Having purchased the Albertson's chain a few years back, it larded itself with a debt load that it struggles with to this day, and now it's ended its dividend. Management says there's still a future for the third largest chain, but analysts think that future is in the graveyard. While I warned against standing in the checkout line back in April after it surprised the market, it seems hard to believe someone won't want to pick over the bargain bin at these prices.
Black days ahead
Despite a few up days, the threat of following Patriot Coal into bankruptcy remains the biggest threat to James River Coal. With natural gas still at historically low prices, competition stiff, and demand low, the coal industry is undergoing major changes that will likely see more bankruptcy filings and consolidation. Foolish writer Edgar Ambart sees other miners like Alpha Natural Resources and Arch Coal in greater danger than James River at the moment, but that doesn't mean investors ought to be the canary in the coal mine and buy its stock. There's a lot more coal dust that needs to settle before buying any of these mid-tier miners.
While some investors clung to the hope that a new generation of Keurig machines with new patent protection and deals with rival coffee makers would perk up Green Mountain Coffee Roasters' stock, competition for machines and coffee are just proving to be too strong a tide to swim against. Analysts at Stifel Nicholas slashed this year's earnings view and then spilled a hot cup of joe on Green Mountain's lap by forecasting 2014 earnings that are just more than half of the current consensus view. Starbucks will be coming out with its own machine, discount K-Cups will flood the market, and the outlook for the coffee maker is staler than a day-old cup of coffee. I've been bearish on Green Mountain for some time now and won't be closing out my underperform rating on Motley Fool CAPS anytime soon.
Tomorrow's marquee name
While analysts have issued a bearish note on kiosk movie rental king Coinstar, I'm not ready to change my outperform position on it since that situation is far more fluid, and there are plenty of chances for the investment thesis to still play out. The analyst at Dougherty & Co. is worried about the effect the dearth of blockbuster movies will have on Coinstar's third-quarter results -- Hollywood producing fewer movies people want to see will translate into fewer rentals down the road. For me, that's a temporary issue that can be readily overcome down the road. But he also is worried about Redbox's joint venture with Verizon to produce a streaming service to rival Netflix, believing the pace of content acquisition hasn't been enough to mount a serious challenge. That's a matter of conjecture, since Netflix's own library contains tons of duds no one really wants to watch, not to mention it's alienated a slew of customers with unfriendly policies. I'm willing to wager Coinstar will still see its name up in lights.
Easy as 1-2-3
I'll admit to A123 Systems becoming one of my favorite whipping posts as it continues to squander the cash taxpayers advanced it. Having warned that it has but five months of cash left before it runs out of money and is tapping the capital markets with an offering of stock and warrants, the news that rival battery maker Valence Technology filed for bankruptcy protection did nothing to encourage investors that A123 won't soon be joining it. I've certainly been expecting the end for some time and think it is only a matter of time before it throws in the towel, too. The electric vehicle market isn't what was expected as demand has failed to materialize. Even GM has given up on its lofty sales goals for the Chevy Volt.
CAPS member bIlluminati agrees that A123 is running out of time: "Not profitable; heavy expenses coming up. Will need to sell shares at a low price."
I'm putting the battery maker on a death watch and believe the end will come well before it runs out of cash. But tell me on the A123 Systems CAPS page, or in the comments section below, whether you think it can recharge itself, or, like me, believe it will soon be towed off to the junk heap.
Ready for a resurrection
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Fool contributor Rich Duprey holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Starbucks, Netflix, Green Mountain Coffee Roasters, and Supervalu. Motley Fool newsletter services have recommended buying shares of General Motors, Coinstar, Netflix, Green Mountain Coffee Roasters, and Starbucks. Motley Fool newsletter services have recommended buying calls on Supervalu. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks.The Motley Fool has a disclosure policy.