After a brief spate of good earnings news, worries are cropping up again that the economy is weaker than anticipated. Dow Jones Industrial Average (DJINDICES:^DJI) component DuPont (NYSE:DD) was responsible for much of the index's 243-point decline yesterday as its stock dropped 10% on weaker-than-expected earnings as solar panel demand and international volumes for titanium dioxide -- the stuff used to make paint (and Oreo cookies!) white -- dropped sharply. 3M (NYSE:MMM) did nothing to help the situation as "current economic realities" caused it to cut its full-year guidance.
Below we'll look at DuPont's decline along with two more companies whose performance was much worse than the Dow's. Now don't run over the cliff with your stock like a bunch of lemmings: It could just be a temporary situation. Let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.
From chaos, order?
Supermarket chain SUPERVALU might have fallen nearly 9% yesterday, but that's only because the day before, shares skyrocketed 45% on rumors of a potential buyout. Rumors have rocked the chain before, but it was never about private equity swallowing the whole company. In the past, analysts assumed private-equity giants like KKR, TPG Capital, and buyout specialist Ronald Burkle wanted to break apart SUPERVALU and take the tastiest morsels. The rumor the other day was that Cerebus Capital Management, which was seeking to raise $4 billion to $5 billion in debt financing, would take the supermarket giant whole.
Following its acquisition of Albertsons several years ago, SUPERVALU became laden with debt and sclerotic in its ability to meet challenges from nimbler rivals, from Wal-Mart and Target to Kroger and Costco.
Many analysts are still incredulous that SUPERVALU will actually get bought, at least not piecemeal, which explains the drop in price yesterday. A deal may happen, but there's a lot of negotiation that needs to happen first, and the result might not be pretty.
Paint it black
DuPont, as we mentioned, got rocked by poor performance across most of its divisions, but was really hurt by weak demand for solar panels and titanium dioxide. We've seen most of the names in solar suffer a meltdown as tax credits and subsidies dried up, and the specialty chemicals maker has been warning for some time that pricing fatigue was weighing heavily on its TiO2 segment. Prices had been at record levels as the pigment is used in coatings and colorings in various industries, such that DuPont was planning on expanding capacity.
It perhaps should have been a warning that other producers weren't following suit, and now that the financial crisis is spiraling out of control in Europe, spending on infrastructure and construction has fallen precipitously, leaving volumes much lower. DuPont reported that sales tumbled 15% in both European and Asian markets. While the company didn't say whether those capacity expansion plans were put on hold, they did say they were moving to address those challenges.
If the paint pigment is experiencing slack demand, it may also show up in the results of Sherwin-Williams (NYSE:SHW), which reports its earnings tomorrow. What may lessen the impact of weakness in Asian and Europe is that international revenues account for just 22% of total revenues, with 10% of them coming from Latin America. DuPont said that Latin America was its best-performing region relatively speaking, with sales down 1%, suggesting that Sherwin-Williams, while perhaps feeling the effects, won't be painted into a corner by the TiO2 producer's results.
A monster opportunity
The lawsuit that sent Monster Beverage's stock reeling is of course tragic at its core, but it still needs to be proven that the energy drink was the cause of the teen's death, as she also suffered from illnesses too. I have to agree with my colleague Chris Baines that at the risk of trivializing the girl's death, it is unfair to be attacking Monster this way. Its cans do carry warning labels, and they specifically address teen consumption and those sensitive to caffeine. You can understand the parents' pain at the loss of their daughter, but simply having their lawyers go after a deep-pocket target is an unseemly way to capitalize on her death.
With an activist FDA also jumping into the breech to investigate, investors need to consider the longer-term impact on their investment. I tend to think the sell-off was overdone, but market sentiment over a tragedy tied to the drink maker could keep shares depressed for some time. Still, I'm rating Monster Beverage to outperform the market over the long haul on Motley Fool CAPS, the 180,000-member investor community, because I think it will ultimately bounce back from here.
Let me know in the comments box below whether you think I'm being too insensitive to the teen's death and whether you think the energy-drink maker needs to be held accountable.
Rich Duprey has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale and SUPERVALU. Motley Fool newsletter services recommend Costco Wholesale, 3M Company, Monster Beverage, Sherwin-Williams, SUPERVALU, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.