Among the biggest losers in Friday's early trading are
Dril-Quip (
DRC
)
,
BlueCoat Systems(Nasdaq: BCSI)
and
Riverbed Technology (Nasdaq: RVBD)
.
|
Top Percentage Losers -- Friday, May 28,
2010
|
|
Company Name (Ticker)
|
Intra-Day Price
|
Intra-Day
% Loss
|
52-Week High
|
52-Week Low
|
| Blue Coat Systems (Nasdaq: BCSI) |
$22.76 |
-21.1
%
|
$36.25 |
$13.85 |
| Dril-Quip (
DRQ
) |
$49.34 |
-7.8%
|
$70.78 |
$33.95 |
| Riverbed Technology (Nasdaq: RVBD) |
$27.36 |
-6.8
%
|
$32.71 |
$18.17 |
|
*Table includes companies with minimum market
capitalizations of $200 million and three month trading
volumes of at least 100,000 shares. All percentage returns
are listed as of 10:58AM Eastern Standard Time . Click on
ticker symbols for up-to-the-minute price quotes and
percentage gain data.
|
Top Kill appears to Working, But Sector Stocks
Sag
BP's (
BP
)
efforts to finally stanch the flow of oil and gas in the Gulf
appears to be working. Though it remains to be seen during the next
few days if the fix is permanent, this is the first bit of tangible
good news in quite some time. But that's of no help to the many oil
and gas drilling services companies.
Dril-Quip (
DRQ
)
,
Stone Energy (
SGY
)
,
Oceaneering International (
OII
)
,
Baker Hughes (
BHI
)
and
Halliburton (
HAL
)
and many others are all off more than -5% this morning.
The weakness comes from an Obama administration decision to freeze
any new offshore drilling activity for the remainder of the year.
As the Gulf Coast represents one our last great sources of domestic
energy production, the ban will likely be lifted by late this year,
albeit with greater restrictions.
Investors may be over-reacting to the new get-tough stance of the
Obama administration. More than likely, companies will need to
simply spend a bit more on ensuring that all drilling efforts
comply with standard safety procedures. BP cut corners in its
drilling process, and would not have needed to spend much more to
do things the right way.
Action to Take -->
If the flow of oil and gas is truly stopped -- and that's still a
big if -- then a lot of these stocks represent a real bargain in
the context of an eventual rebound in Gulf energy exploration. This
looks like a good time to move into some of these names while other
investors are moving out.
-------------------------------------
Blue Coat's Mixed Message
Investors should take pause from the cautious guidance issued by
Blue Coat Systems (Nasdaq: BCSI)
, a provider of network security hardware and software. Many firms
have been talking about a steadily building rebound in tech
spending, as we saw in robust first quarter results and bullish
forward guidance. But Blue Coat, which had a respectable fiscal
fourth-quarter (ended April) in which sales rose +17% from a year
ago, sees sales falling sequentially in its fiscal first quarter.
That's pushing shares down more than -20% in Friday trading.
Why the cautious tone from management? This comment from Thursday
night's conference call helps clarify things: "We are being
cautious given developments in EMEA (Europe, Middle East, Africa)
and their potential impact on our region is, which historically,
provide 35% to 40% of the company's revenue. We did see an impact
on our business in April, and we currently have no evidence that
conditions will improve in the near term." You get the feeling that
this may start to be a theme. We touched on this issue recently in
this article.
A potential slowdown in Europe is unfortunate for Blue Coat
Systems, as the company is just starting to reap the benefits from
a recent large restructuring and is also seeing solid demand in the
United States. The real question - which nobody can answer just yet
- is whether the slowdown in Europe that Blue Coat saw in April
will prove to be short-lived. It is possible that business activity
froze at the nadir of the Greek crisis, but has subsequently
returned to normal. It is curious that management spoke of European
sales in April, but did not discuss May sales trends. We'll have to
wait for other firms to discuss European operations.
Action to Take -->
If the European slowdown turns out to be a one-quarter event, then
shares of Blue Coat are a real bargain after today's sell-off,
trading for around 10 times projected fiscal (April ) 2012 profits.
That's half the multiple of many other similarly-sized tech stocks
with similar growth profiles. For longer-term investors, you can
feel free to buy into this dip, but know that shares could fall
another -10% or -20% before rebounding if the European crisis
continues throughout the year. For short-term traders, the Euro
skepticism should give you pause.
-------------------------------------
Riverbed May Also Be Exposed
Shares of
Riverbed Technology (Nasdaq: RVBD)
may also be feeling a Euro-induced malaise, as its shares are off
-6% in Friday trading on no apparent news. Riverbed, which makes
appliances that optimize network traffic, derives roughly 30% of
its sales in Europe. It's worth noting that shares trade only 15%
below the 52-week high and trade at 23 times projected 2011
profits.
What kind of price-to-earnings ratio (P/E) you give to tech stocks
right now is the matter of much debate on investing blogs. On the
one hand, we may be entering a solid growth phase after the recent
economic slowdown. But some note that we shouldn't expect a very
sharp upturn because most companies' IT infrastructure is in
reasonably good shape. Moreover, many well-established U.S.-based
tech firms now derive a large portion of sales in Europe as well,
and IT spending there is likely to remain muted.
Action to Take -->
For tech stocks like Riverbed, that 23 times forward multiple is
about all you can ask for right now. To argue for a higher multiple
would be premature in light of the tepid nature of the U.S.
economic recovery along with the clouds hanging over Europe.
-- David Sterman
Staff Writer
StreetAuthority
Disclosure: David Sterman does not own shares of any security
mentioned in this article.