Did you have the misfortune of owning for-profit education
stocks in the third quarter? Then you're likely licking your wounds
right now, and presumably, cutting your losses. Just look at the
third quarter share price drops for some of the leading players in
the sector.
I noted
back in mid-August
that these stocks looked ripe for deeper drops, and that prediction
has surely happened. This whole industry is the epitome of "dead
money," with a range of headwinds that will likely keep them in the
investor doghouse for quite some time to come.
Still, it's useful to take an end-of-quarter look at the crop of
recent losers. Though some stocks surely deserve the thrashing
they've received over the past three months, others have only been
temporarily pushed out of favor and now represent deep value. The
key is to look at what drove the sell-off and how soon management
can stabilize the ship.
Here are the 20 biggest losers in the third quarter. All of
these companies are members of the S&P 400 (mid-caps), S&P
500 (mid and large caps) or the S&P 600 (small caps).
Third-Quarter Losers
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Questcor Pharma (Nasdaq:
QCOR
)
is the quarter's biggest loser and is unlikely to rebound any time
soon.Shares may have been tempting for bottom-fishers after
dropping in mid-September on news that health insurer
Aetna (NYSE:
AET
)
would limit reimbursement coverage for its $23,000 Acthar drug to
just one type of treatment -- infantile spasms. Yet when it
eventually became apparent that the Food and Drug Administration
was looking at Questcor's possible wrong-headed marketing
practices, this truly became a stock to shun. Such FDA
investigations rarely end well.
A few pegs down the list you'll find
RadiSys (Nasdaq: RSYS)
, a provider of software and services to the wireless
communications sector, that has seen its stock fall from $10 to
just $3 in the past two years. The company just announced plans to
replace itsCEO in tandem with lowered third-quarter sales guidance
(which will now likely be around $65 million instead of the
previously guided range of $66 to $72 million.)
Despite the weak outlook, this stock is beginning to hold deep
value for patient investors. The price to salesmultiple is now
below 0.5 -- quite low for a company with a fair mix of high-margin
software in the sales mix, and when the wireless telecom equipment
markets stabilizes,earnings could move back north of 50 cents per
share -- either in 2013 or 2014. Shares trade for around six times
that outlook.
A trucker's rebound?
In late August,
I noted that
trucking firm
Arkansas Best (Nasdaq:
ABFS
)
had been dogged by a recent legal verdict in favor of the Teamsters
union. At the time, I noted that the sell-off may have been
overdone as Arkansas Best appeared poised for rising profits,
despite those labor challenges. Well, shares have fallen another
10% since then, perhaps due to a factor I cited in late August:
"Arkansas Best is in the midst of shaking out its current base of
shareholders. Once that process is complete, value investors are
likely to take note and send the stock higher."
Is that still the case? I think so. That's because the company
is valued at just $200 million, but has tangiblebook value of $300
million. And although analysts have trimmed their 2013 earnings
forecasts from $1.20 a share back in July to a recent 90 cents a
share, the even larger share price drop (on a percentage basis)
means that the forward price-to-earnings (P/E )multiple is now just
nine. I still think that
Wabash National (NYSE:
WNC
)
is the best play in the trucking sector,
as I noted here
, though Arkansas Best also looks to have solid rebound
potential.
Amarket share gainer
After falling from $70 at the start of the third quarter to around
$50 by late August,
I saw clear rebound potential
for
Coinstar (Nasdaq:
CSTR
)
.
Well, shares have fallen another $5 to a recent $45. Investors
are apparently taking a wait-and-see approach to the company's
imminent launch of a video-streaming service to rival a
similaroffering by
Netflix (Nasdaq:
NFLX
)
. Management is likely to shed a lot more light on theeconomics of
the service when quarterly results are released on Oct. 25.
As I've noted on a few occasions in the past, Coinstar has a
multi-year history of a rising tide of doubters about itsbusiness
model . And management has invariably delivered financial results
that are handily better than what the company's detractors usually
predict. So this stock gets repeatedly beaten down and then rises
anew. The current beatdown looks like a chance for Coinstar to
surpass increasingly low expectations.
Risks to Consider:
These stocks have tumbled in an otherwise strong quarter, so if
themarket softens in the fourth quarter, then these stocks may be
hard-pressed to rebound in the near-term.
Action to Take -->
In most instances, the bad news for these stocks is priced in. The
key is determining which are likely to just sit at current
depressed levels and which ones are poised to rebound.
It helps to focus on value in making your assessment: RadiSys,
Arkansas Best and Coinstar all trade for less than 10 times
projected 2013 profits, well less than the broader market multiple
of around 13. Also of note is that 2012 earnings per share for all
three are expected to be solidly above 2012 results. That's a key
factor to consider when looking for rebound candidates, and it
makes all three worth considering.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.