You saw the headlines. You know your stock price made a big move -- up or down. But what does that portend for your investment's future? If there's not a fundamental basis for a stock's run higher or if its trip to the cellar was fueled by transient, panic-driven selling, those gains and losses might not hold -- and therein lies the potential for investors to profit.
So this week we're looking at two stocks that suffered sharp, double-digit losses: James River Coal
You can't follow the momentum crowd blindly, which is why we look at what may have been behind those moves and we'll even take into consideration what some of the sharpest investors think about their prospects going forward. Event-driven moves, coupled with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, might enable us to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
Just a lump of coal
Despite coal being a cheap, plentiful source of domestic energy, its reputation as a "dirty" fuel has put the entire industry under the gun. It faces an administration with a vocal animus toward it, a regulatory apparatus at EPA that is heaping new regulations on it, and a rival energy source -- natural gas -- that is just as plentiful and cheap but without as much baggage.
That's put James River Coal in a particularly tight spot and ratings agency Standard & Poor's downgraded its credit to junk because of the odds stacked against it. The stock has dropped 22% since the hammer was dropped.
The miner reported wider losses in the first quarter than the year-ago period, albeit narrower than what analysts were expecting, but S&P doesn't see the environment changing for the better and anticipates it will command even lower prices, lower demand, and lower tonnage contracts next year.
As you'd expect, it's not just James River that's felt the sting of a downgrade: Patriot Coal also had the boom lowered on it as it was forced into bankruptcy and the coal industry in general has a black cloud hanging over it.
Yet despite selling for less than the cash on its balance sheet, as CAPS member 5starman notes, it's hard to recommend the stock because of the forces arrayed against it. Things could still get much worse as its interest expenses climb due to the downgrade. I'm not willing to invest in the coal industry just yet.
No news not good news
For such a steep decline as Ivanhoe Energy experienced -- it lost more than 35% of its value in just one week before bouncing back -- there was surprisingly little news to explain the cause. While it had been drifting lower most of the week, the bottom fell out in the waning minutes before the market's close before the weekend two weeks ago. Someone apparently wanted to get out in a hurry before the start of the weekend -- and they got back in, too, as the stock now trades above where it was.
Although nominally a Canadian oil and gas play, Ivanhoe actually owns millions of acres of property in China, even after selling one of its projects to Royal Dutch Shell
Sign on the dotted line
Global IT specialist Unisys was once a driving force in computers, back when it was separate companies operated as Sperry-Univac and Burroughs, but today it is a much smaller, more focused company, and it continues to shed non-core businesses while focusing on outsourcing, still a high-margin operation.
Although still a work in progress, it may have finally turned the corner. It won a bunch of government contracts over the past few weeks that caused its stock to rise, though it's given back some of those gains. Most recently it won a contract with the Department of Homeland Security to compete for task orders under the Tactical Communications Equipment and Services contract. Impressively, the deal is worth up to $3 billion over five years to the 30 companies involved in the project and comes on the heels of winning a National Institutes of Health contract that is expected to be worth $20 billion over a period of 10 years to the 54 companies included. It got another $20 million contract with the IRS before that.
Federal government spending served as a drag on its performance earlier this year, after a contract with the Transportation Security Administration ended, but the purse strings have opened again and Unisys is gaining its share of the work. Yet, as Unisys has seen, government spending can be a fickle master.
Unisys' turnaround has generated consternation among investors, and CAPS member Qtmssngarnd worries its ClearPath software and servers may be in decline. All-Star members on CAPS have significant misgivings, with 40% of those rating it thinking it will underperform the market indexes. I think the recent contract wins show its prowess remains intact, so I'm rating Unisys to beat the Street, but let me know in the comments section below whether Unisys is still finding its footing.
Add Unisys to the Fool's free portfolio tracker and put Ivanhoe Energy and James River Coal on your watchlist to see if they will continue to crumble.
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