Please ensure Javascript is enabled for purposes of website accessibility

Why Did My Stock Just Die?

By Rich Duprey - Apr 9, 2013 at 9:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These stocks just rolled over. Which ones will bounce back?

The late afternoon rally of the Dow Jones Industrial Average is becoming a routine occurrence. The index once again started off down from its previous close, only to gain slowly throughout the day and then rally toward the close, yesterday gaining 48 points and ending at 14,613, within striking distance again of its all-time high.

Some might say there were those trying to prop up the Dow to mask the underlying weakness that would otherwise be evident and which would send the index crashing if it were allowed to play out. While I'm not part of the tinfoil-hat brigade, there doesn't seem to be any reason for the market to be at such lofty levels with all that's going on in the economy and around the world, but there were some stocks that no amount of propping up could help.

The two following stocks fell sharply yesterday, but don't go running over the cliff with them like a bunch of lemmings. Large sell-offs could actually be buying opportunities, so let's first see whether there was a reason behind the decline that might make them an interesting investment at this level.

A date with destiny ... or death
After investor hopes were raised in February and March that approval of its drug delivery system to treat tumors in the liver was gaining traction, medical-device maker Delcath Systems (NASDAQ: DCTH) sucked the air out of its sails by saying the FDA had pushed its PDUFA date back three months and will now make a decision by Sept. 13. Its stock fell 7% on the news.

The drug and delivery system, formerly known as Chemostat but to be marketed under the horrible name Melblez -- which is the brand name for the underlying drug, melphalan -- isolates the liver's blood outflow from the rest of body's other organs, where it is saturated with chemotherapy at concentrated levels.

In February it noted German regulators said the country's cancer centers could receive reimbursement from insurance companies, which gave Delcath's stock a boost even though there was no guarantee they would reimburse them. It ended that month by noting the FDA's advisory committee would be meeting May 2 to review its NDA for Melblez with a PDUFA review in June.

Delcath has been raising tens of millions of dollars through dilutive stock offerings as shares rose, but the delay has sent tremors among investors that it could be the next Celsion, a one-time promising cancer treatment developer that ultimately crashed and burned.

As I noted before, as promising as Delcath's treatment may be, there are risks aplenty, and sometimes there's no accounting for how the FDA will vote. Tread carefully when it comes to such novel treatments.

Tin pan alley
Wireless backhaul operator Ceragon Networks (CRNT 1.18%) dropped 8% yesterday after reporting that it expected first-quarter revenues to come in lower than previously anticipated because it is having trouble getting customers to close on deals.

Although the first quarter is typically a seasonally slow period, management said the drop in bookings it's experiencing goes beyond simple seasonality and indicates that wireless operators are being uncommonly cautious. They might be in need of the extra capacity Ceragon's equipment provides, but the market is so weak at the moment they're still taking a go-slow approach. According to Tellabs (NASDAQ: TLAB), the industry is facing a a $9.2 billion global backhaul funding gap, with a 16 petabyte shortfall in backhaul capacity by 2017.

Investors definitely need to be choosers here. While Ciena (CIEN 0.04%) reported relatively robust results, handily beating analyst profit expectations, revenues came in at the low end of management's guidance, while DragonWave missed quarterly forecasts altogether.

Even though the Tellabs survey suggests there should be plenty of business all around, the reality is the wireless business is walking on eggshells, not willing to put up the money until it sees which way the market is heading. With that kind of conservative outlook, there may be more downside range for Ceragon to explore.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ceragon Networks Ltd. Stock Quote
Ceragon Networks Ltd.
CRNT
$1.71 (1.18%) $0.02
Ciena Corporation Stock Quote
Ciena Corporation
CIEN
$49.84 (0.04%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.