Wednesday's 1% decline in Wal-Mart (WMT 2.19%) was just one of only a handful of stocks among the Dow Jones Industrial Average that fell as the market took leave of its senses and raced to yet newer highs. The index surged 129 points to close at 14,802, and has me fearful of a big crash coming.
While the retail king didn't crash and burn, the pullback in its stock wasn't so surprising, because it's also been hitting new lofty levels. Wal-Mart's fourth-quarter earnings report in February was much stronger than everyone anticipated and helped fuel the current rally in its shares as consolidated revenues jumped almost 6% to $122 billion and comparable traffic and same-store sales were both strong.
Yet Wal-Mart's stock is up 14% year to date, and like the Dow itself, it's a pace that can't be maintained for extended periods of time. It might not pullback sharply, but one has to imagine it has plateaued and Wednesday's's drop may be the signal it's reached its zenith for the moment.
Clash of the titans
Where Wal-Mart got a boost from its earnings, Titan Machinery (TITN 6.59%) was slashed as a result of its financial report as profits narrowed in the fourth quarter and it missed by a wide mark analyst expectations. Even though it beat top line estimates as revenues jumped 29% from the year-ago period, Titan's per-share earnings came in at just $0.73, a $0.19 miss from what Wall Street was anticipating.
It sells a diverse line of agriculture and construction equipment and despite the former continuing to live up to expectations, the latter did not. A healthier looking homebuilder industry is masking an underlying economic malaise that Titan was unable to shake. And with its rental equipment business turning in weak numbers as well the entire company's performance was dragged lower.
The dichotomy between the two segments would seem to represent what we've seen in the broader market where agriculture equipment powerhouse Deere (DE 1.10%) beat analyst expectations in the first quarter as it said it strong, 5% growth throughout the year should be expected, while construction equipment leader Caterpillar (CAT 1.66%) had to cut jobs because of waning demand.
Titan's 14% decline Wednesday just might represent a good time to buy in to its stock. Although the farming business might be enough to prop up a weaker construction arm, if housing can continue its comeback, Titan could surprise everyone in the end.
The not-so-great and wonderful OCZ
There was no company-specific news that caused solid-state-drive maker OCZ Technology (NASDAQ: OCZ) to fall almost 8% Wednesday. But an article that appeared on Seeking Alpha questioning whether the company had six months or less to live before it filed for bankruptcy seemed to coincide with its fall.
OCZ began spinning out of control last year after problems surrounding certain customer incentive programs arose that led to significant quarterly losses and the abrupt resignation of its CEO. It has yet to file its financial reports for several periods and that has put its Nasdaq listing in question, though it has received extensions from the exchange. Notably though it was supposed to file them by April 8 and that deadline came and went after which OCZ said it expects to get that delisting notice, though it will appeal it and ultimately regain compliance.
Fortunately, OCZ previously secured a $30 million loan and security agreement with Hercules Technology Growth Capital, which not only shored up its dwindling financial base for the time being but likely puts to bed the question of whether it will actually have to file for bankruptcy. Payments aren't due till November and by then it should have picked up and dusted itself off.
One of the hopes has always been that Seagate Technology would step in to buy OCZ out. That remains a possibility, particularly in its weakened state, but I wouldn't expect anything until it straightens out its financial mess. With its SEC filings still a big question mark, it would be a big, risky move to make. Yet, if Seagate were interested, it would want to move before a bankruptcy, since there might be many more buyers interested in picking over the carcass of OCZ then.
The most likely outcome is that investors will have to patiently wait while the drive maker limps along on its own for some time to come.