The markets crashed on Thursday. Dow fell 512 points for its worst day since 2008. Dow Jones (DIA) fell by 4.15%. S&P 500 (SPY)'s loss of 4.83% was more dramatic. Commodity prices also dropped sharply. Oil, gasoline, silver, and palladium each fell more than 5%. Even, the 'safe haven' gold lost 0.4% during the black Thursday. Investors, worried about the recovery, purchased Treasuries, driving down the 2-year yield to a record low of 0.29%. The yield on 10-year Treasury notes fell to 2.51%. The panic decimated the market value of the following 5 stocks:
|Walter Energy, Inc.||WLT||-29.50%||4.14B|
Dendreon is a biotechnology company focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients. The stock lost 67.38% on Thursday. Brean Murray just downgraded the stock with a target price of $6. Interestingly, the same "research company" reiterated a buy rating for the company with a target price of $60 on May 3. According to Robert Weinstein, Dendreon is a company on sale. However, the balance sheet shows that the company was already over-priced. The company has been making losses since 2005. The EPS in 2010 was -3.18. Investing in bio-tech companies is similar to purchasing a lottery ticket. You can make great gains but you might also make great losses. I expect a huge volatility on the stock for the upcoming days. Staying neutral until the dust clears should do okay.
Utah-based Huntsman Corporation manufactures and retails differentiated organic and inorganic chemical products worldwide. The company operates in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments. The stock lost 30.52% on Thursday. Company's reported Q2 EPS of $0.48 missed the consensus estimate by $0.01. However, revenue of $2.9 billion was $0.1 billion than analyst estimates. As of Aug 3, the stock was trading with a trailing P/E ratio of 13.74, and a forward P/E ratio of 5.61. Analysts estimate a 7% annualized EPS growth for the next 5 years. With a nifty yield of 3.2%, Huntsman has an O-Metrix score of 5, which is slightly above the market average. I fail to see any significant reason for the sharp drop in the stock price. Current price offers a good entry point for those interested in investing chemical industry.
Alabama-based Walter Energy is a producer and exporter of metallurgical coal. The company's primary customers include steel producers as well as electric utility companies. The disappointing earnings report crushed the stock by 29.5%. The company's Q2 EPS of $2.36 missed the consensus estimate of by $1.77. The stock was subject to immediate downgrades by KeyBanc Capital Mkts and Brean Murray. Still, BMO Capital Market analyst Meredith Bandy is bullish on the stock with an outperform rating. Even after the disappointing report, the stock is trading at a single digit P/E ratio. The company is highly profitable with a gross margin of 52.35% and net profit margin of 25.44%. The volatility might continue for a while, but any price below $100 offers a compelling entry point.
Clearwire is a wireless broadband service provider. The company operates mobile broadband networks, providing high-speed mobile services to commercial and residential customers. The stock took a beating and is down by 28.74% after a disappointing second-quarter earnings report. Pro forma Q2 EPS of -$0.71 misses the consensus estimate by $0.22. Pro forma revenue of $293.7M (+151% Y/Y) misses by $0.8M. The company also announced its intention to raise an additional $900 million to build a better network. Citadel is confident Clearwire will get the funding it needs for its LTE network build, and Wells Fargo thinks going with LTE opens the door to new partnerships. Nevertheless, the company is making significant losses and has some serious debt issues (debt to equity ratio equals 3.65). Intel (INTC), one of the largest shareholders, has been dumping its holdings for a while. Insiders reduced their ownership by 28% in the last 6 months. It is a very risky company to invest in.
McDermott International is an engineering company with a diversified portfolio of ongoing projects worldwide. Company mainly focuses on building complex offshore oil and gas projects. The recent earnings report was not that bad. Q2 EPS of $0.27 missed the estimates by $0.05. The revenue of $849.8 million (+35% Y/Y) beat the estimates by $7 million. Unexpectedly, the stock lost 26.85% on Thursday. As of Aug 4, the company is trading with a P/E ratio of 12.92 and forward P/E ratio of 8.4. Analysts estimate 17% EPS growth for the next 5 years which might be slashed after the earnings report. Still, the current valuation levels justify an annualized EPS growth of 10%. Besides, with a Debt/Equity ratio of 0.04, McDermott has no debt issues. The stock might go down further until the dust settles. Nevertheless, the current price offers a compelling entry point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.