Earnings season is a great time to watch for stocks that decline after a company reports earnings or guidance that disappoints investors. Many stocks see exaggerated drops in their share price if a company "misses" earnings expectations by even a couple of pennies. Other times the earnings meet expectations, but if the company gives guidance that looks weak, it also often results in an exaggerated sell off in the stock. The reason I look for these opportunities is because stocks that are oversold often rebound quickly, sometimes in just days and this can create quick profits for traders or solid entry points for longer term investors. With earnings season in full swing, there are stocks getting major haircuts everyday for what might be just a short term earnings miss, so opportunities abound. All of the stocks below recently reported earnings and/or guidance that caused the shares to drop substantially. These stocks could rebound in the coming days and weeks:
Ctrip.com International (CTRP) is trading at $27.56. CTRP is based in China, and provides travel services, tickets and more. These shares have a 52 week range of $27.53 and $50.57. The 50-day moving average is $34.83 and the 200-day moving average is $40.43. Earnings estimates for CTRP are around $1.13 per share in 2011 and $1.44 for 2012. The book value is stated at $7.25. The PE ratio on these shares is higher than most of the companies discussed here, but when compared to the valuation at Priceline.com (PCLN), these shares look reasonable. CTRP announced earnings this week and the stock plunged from about $34 to the $27 range. Investors seemed to be focused on weak guidance for the 4th quarter. The stock hit a new 52 week low at $27.53 this week and it might not have bottomed-out yet so I would buy in stages. I expect a solid rebound off the lows soon.
NPS Pharmaceuticals, Inc. (NPSP) shares are trading at $5.67. NPS is a biotechnology company that is focused on treatments for rare diseases. The 50-day moving average is $6.49 and the 200-day moving average is $8.22. Earnings estimates for NPSP are a loss of 44 cents per share in 2011, and a loss of 24 cents for 2012. The 52 week range is $4.35 to $10.75. NPSP shares dropped significantly when earnings were released along with drug program updates, but it seems to be a clear overreaction. This looks like a good stock to average into over the next few weeks, as it is likely to spike higher in January when tax-loss selling comes to an end.
Jinkosolar Holding Co., Ltd. (JKS) is trading at $6.59. Jinkosolar is a leading maker of solar products and is based in China. These shares have a 52 week range of $4.55 to $32.21. The 50-day moving average is $7.89 and the 200-day moving average is $19.93. JKS has earnings estimates of about $4.33 per share for 2011, ad $1.40 for 2012. This puts the PE ratio at very low levels and the book value is $21.45. The solar stocks look cheap after falling over 80% from the 52 week high in some cases, however, they have been a value trap for many investors as estimates and revenues have continued to fall. JKS shares were trading around $8 just a few days ago and then dropped sharply after the company announced disappointing results. If the stock drops below $6, it could make for an interesting short term trading opportunity.
Renren, Inc. (RENN) is trading at $4.60. Renren is a social networking company in China. Many call it the "Facebook" of China. The 52 week high is $24. These shares have dropped from recent highs of around $14 to current levels. Reports have put the value of Facebook at around $75 to $100 billion, and that makes buying RENN with a enterprise value of about $1 billion a real bargain. The largest social networking site in China (the most populous nation in the world) has to be worth more than 1% of Facebook. This stock should see a boost when Facebook goes public, but for now it is being punished for a disappointing quarter and weak guidance. Investors were looking for more growth now, but patience could pay off in the long run since this stock is well off its highs. Read more about the quarter and guidance here. This stock is also likely to see tax-loss selling so I would average in over the next few weeks in anticipation of a rally in 2012.
Wal-Mart Stores, Inc. (WMT) shares are trading at $57.46. Wal-Mart is a leading retailer of everything from food to clothes. The shares have traded in a range between $48.31 to $59.40 in the past 52 weeks. The 50-day moving average is $54.64 and the 200-day moving average is $53.23. Earnings estimates for WMT are $4.49 per share in 2011, and $4.91 for 2012. This stock pays a dividend of $1.46 per share which yields $2.5%. WMT shares were trading around $59 but dropped after earnings were released. Investors seemed to be disappointed that sales were not stronger and that dollar stores would continue to impact Wal-Mart. That trend could take time to play out, but the company is well managed and it should remain competitive. This stock was trading around $52 in early October so it's no bargain yet, but it would be if it trades back at recent lows soon and that is when it makes sense to buy.
Motricity, Inc. (MOTR) shares are trading at $1.45. MOTR is a leading provider of mobile data solutions. These shares have a relative strength index of about 35 which indicates the shares are becoming oversold. The 50-day moving average is about $1.83 and the 200-day average is $8.05. The shares have traded in a range between $1.19 to $31.39 in the past 52 weeks. Motricity reported earnings which disappointed the market (again) as shares dropped from about $1.85 before earnings to current levels of around $1.45. Earnings estimates for MOTR are for a loss of 8 cents per share in 2011, and a 9 cent loss for 2012. This company and stock have been a huge disappointment for many investors and there is little doubt it will see plenty of tax-loss selling in the next few weeks. This could easily push the shares to 52 week lows around $1.19 or below. A buy around $1 per share might reward investors who hold this stock past January, when tax-loss selling will be over.
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I am long RENN. I may buy NPSP and CTRP shares soon.