While many investors like to chase hot stocks on the rise, sharp Fools also look for quality companies facing recent setbacks. Getting a great company for a cheaper price is often better than simply piling into momentum plays.
Internet fax and communications company j2 Global
Let's start with what's behind the drop in favor of j2 Global -- disappointing third-quarter earnings. When the company blamed the ongoing credit squeeze and mortgage mess for weak sequential revenue growth, investors sold first and asked questions later. As many financial companies cut their headcount, they're also cutting the fax and communications lines that j2 Global supplies.
We're not necessarily talking here about major banks and lenders such as Citigroup
So unless President Bush's latest mortgage bailout plan smoothes out all the subprime wrinkles (yeah right), investors can expect j2 Global's business to remain challenged in this area. Management estimated that it lost about $1 million in revenue from the weak financial sectors, enduring a sequential drop in margins as well.
In Motley Fool CAPS, j2 Global enjoyed a top notch five-star ranking for a good portion of the year. Since the earnings announcement, though, it's seen nothing but four stars. It's interesting to note that all investor comments logged since the earnings date have been bullish, citing the lower price as an opportunity. In contrast, most of the bearish calls were based upon a high valuation prior to the stock drop.
I would agree with the larger community of investors regarding j2 Global. The company will certainly see some impact from macroeconomic factors, as well as competition from traditional telecom solutions from Verizon Communications
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Fool contributor Dave Mock's star power is not a subject of debate. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy is a beacon of light for investors everywhere.