I do not believe I have witnessed a market such as this during my lifetime. Investors are so impulsive regarding the way in which they trade stocks. Everyone is worried about the potential for another recession as in 2008. The market began the day on Friday in positive territory only to fall more than 200 points. The Dow Jones closed trading up 60.93 with the Nasdaq losing 1% and the S&P near even.
I do not believe we have seen the end of this downtrend period; however, we may see a couple gains or stalls along the fall. As an investor I have set prices at which I will purchase stock with loss, to accumulate additional shares. I feel confident in this position as I have been successful with this strategy many times in the past. However there are many stocks that have experienced price action that is difficult to justify. These stocks are falling as a result of market panic with no significant developments pushing them lower.
Sandridge Energy (SD) fell over 20% throughout the day on Friday. The stock has now seen loss in excess of 30% since August 1st. This price action confuses me because the company just announced for the previous quarter that revenue and net income has doubled year over year. Even with growth such as this I have seen companies decline if they announce weak guidance. However Sandridge increased guidance and announced a joint venture with a Korean affiliate for a potential value of $500 million in exchange for a 13.2% interest in the northern Oklahoma and southern Kansas areas. The only explanation is that investors believe the company sold short. The area is large but I doubt the company will sacrifice its best drilling locations. Another potential red flag to investors is spending, as funding will be an issue for drilling during the future. My issue with the market's reaction is simple, I do not believe the company's value has decreased by 20% in one day after announcing earnings that increased in several important areas
Weight Watchers International (WTW) traded down 17% after announcing 2nd quarter earnings. Net Income rose 55%, EPS beat expectations, revenue increased 29% which includes additional online revenue, and the company increased guidance. So what more do investors want from this company? They have a new marketing campaign that is sure to bring immediate attention. Weight Watchers has hit on all recent marketing/advertising during the last few years. The stock should be trading significantly higher but is seeing large loss as a result of a confused market. I expect the stock to recover quickly and post positive returns for investors who take advantage of the stock's current price.
GT Solar International (SOLR) has seen loss over 10% since announcing earnings on August 3rd. The company posted a 71% increase in revenue and a 273% gain in EPS year over year. The stock may have dropped because earnings were not as solid as first quarter earnings. Investors may have anticipated growth from the first quarter. The company has shown all signs of growth and continue to experience large orders, with a backlog of $2.3 billion. The company recently finished the additions to a new factory which will produce products at a faster rate. The stock is trading with a P/E of only 7.66 in a sector that is traded with caution. If the company is able to sustain growth they will produce long term gains for investors regardless of market conditions
Jazz Pharmaceuticals (JAZZ) has lost nearly 15% of its value since August 1st. The company recently announced quarterly results that beat estimates with a 60% gain in revenue and guidance that surpassed expectations. The company has beaten estimates four straight quarters with analysts unable to keep up with the company's successful products. The stock should see large gains as investors prepare for the future and reflect upon the past. The company has seen stock increase over 300% during the last year because of higher sales and profit margins. In 2010 the company posted record financial results in nearly all categories and is on pace to surpass last-year numbers by a large margin.
Sirius XM (SIRI) has lost 12% of its value since the announcement of earnings on August 2nd. The company gained additional subscribers and increased retention rates. More than 65% of new vehicles manufactured in the United States have Sirius XM. Car sales have increased throughout the previous two years and are expected to increase over the next 3 years. The company posted EBITDA that increased by 20% and the company is gearing up for Sirius 2.0. Most investors would consider this quarter to be solid yet the price has decreased. Sirius trends with the market as much as any stock traded today. I expect Sirius to see huge returns when there are gains in the overall market. Sirius will outperform in the near future but is briefly experiencing the pull of the market. I would load up on shares at the current price as SIRI has the ability to reverse very quickly.
Ford (F) and General Motors (GM) have now dropped to new 52 week lows. I believe both companies are solid investments and will see large returns for both short and long term. The companies are both trading with P/E under 6.5 which leads me to believe the sell-off will not continue at its current rate. Although both companies posted solid quarters, I am more surprised with General Motors' reaction to the market
GM has lost nearly 6% since announcing earnings on August 4th. The company posted profit that nearly doubled, which included revenue gain of 19% year over year. The company shows strong growth and will see large returns in the future. The Financial sector and Automobile market are among the first to fall at fear of a recession. During the recession of 2008 both areas of the market were hit the hardest. This experience is fresh on the minds of investors who watched their shares plummet during that time period. It should be expected for automobile stocks to decrease in fear. This downtrend is not the same as the recession experienced in 2008; the automobile industry is not losing but rather gaining at a remarkable rate. I expect to see large gains for both General Motors and Ford during the next five years.
Each company delivered strong earnings with a solid forecast. The market's decline will bring loss, which should be expected with most traded companies. What surprises me is the rate at which these companies have declined without justification. I expect each company to recover from these losses and post large gains. A buy at current prices should provide a solid return regardless of how much lower the economy sinks.
With new developments regarding the downgrade of U.S. Credit by S&P I expect more panic within the market. Therefore it is likely that each company will decrease even more. This should give investors the opportunity to buy undervalued stocks, positioned for growth. I will wait for a slightly better price while remembering not to wait long. When the markets are calm these stocks will move up and it will be hard and fast