during the past several months has helped boost virtually every
portfolio. Yet without the wind at your back, marking steady gains
becomes that much more challenging. Indeed, April represents the
first weak month for the market in quite some time. With the
exception of a very tiny pullback in November, the market had been
rallying for much of the past six months.
Yet market pullbacks bring fresh opportunity because some
individual stocks can take really deep hits if they don't have a
rising broader market to support them. Consider this item: 16
stocks fell at least 30% in April (among companies with at least
$250 million in
). That's the largest group since September.
To be sure, most of these plunging stocks deserve the lambasting
Netflix (Nasdaq: NFLX)
, for example, looked vastly
when the month began. After a recent sharp pullback,
still look overvalued, as I've noted
in this article
And it should be no surprise to see
Groupon (nasdaq: GRPN)
Zynga (Nasdaq: ZNGA)
on this list. These companies were so richly valued this past
winter that they had only way to go -- down.
For that matter, the ongoing troubles at
Clearwire (Nasdaq: CLWR)
should have never led to a temporary rebound in the first place.
Though I initially suggested shorting this wireless services
provider when it traded above $6 back in the summer of 2010, my
this past October
to keep shorting the stock has been more challenging. Shares
subsequently rebounded but are falling anew and could still head
well lower as cash balances evaporate.
Yet the batch of April losers also brings potential opportunities.
As an example, the sharp drop in
Halozyme Therapeutics (Nasdaq: HALO)
, appears overdone, as I noted
in this article
Two other stocks in the table above merit your research, as they
could make solid rebound candidates.
1. Allscripts Healthcare (Nasdaq: MDRX)
Back in 2010, this company acquired Eclypsis, creating the health
care industry's broadest platform for electronic medical records.
In the face of looming changes that would eventually compel doctors
and hospitals to put away the pen and paper and create fully
digital patient records, this stock should be a home run right now.
Instead, this will likely go down as one of the most poorly
executed mergers of all time.
Every quarter brought a fresh excuse as to why the two companies'
disparate platforms were taking a long-time to merge. Clashes at
the newly joined-at-the-hip respective management teams didn't
help. Meanwhile, rivals such as
Cerner (Nasdaq: CERN)
quietly stepped in and poached customers.
If you did the math a few years ago, then the combined entity
looked like it might be able to generate $1.50 in
earnings per share (
or more by now. Instead, the company will be lucky to make half
You can only imagine the boardroom infighting when Allscripts
announced first quarter
of $0.12, half the already-lowered forecast that had been in place.
Several executives and board members abandoned ship, and the
company's new Chairman, Dennis Chookaszain, must figure out how to
salvage the mess.
Value investors may have a different take on the situation. The
ongoing turmoil, which has caused the stock to fall by half in just
the past three months, has left shares sporting some intriguing
metrics. For example, Allscripts now trades for 1.4 times trailing
sales. For rival Cerner, that figure is 6.0. Those numbers happen
to be identical for each firm in terms of price-to-book (1.4 and
6.0) as well.
The challenge ahead is to stabilize operations and perhaps find a
buyer. You should expect little from Allscripts in the June
quarter, but it will be quite interesting to see what the new
Chairman has to say about a
strategy at that time.
2. Tempur-Pedic (
Investors often react emotionally when a company disappoints them.
This mattress maker had developed a strong investor base by
boosting sales more than 25% in 2010 and again in 2011 (to $1.42
growth was even more impressive, rising from around $1 per share in
2009 to $2.16 in 2010 to $3.18 in 2011.
So when the mattress maker recently warned that growth would cool
in 2012, investors sprinted away. Shares closed at $83.75 on April
19, the day that guidance was issued, and fell to $66 the next day
and now sit below $60.
As analysts at Hilliard Lyon subsequently noted, "while consensus
expectations had apparently gotten a bit too enthusiastic, the
reaction strikes us as equally overwrought."
The sell-off led Hilliard Lyons to raise its rating from "neutral"
to "buy," along with a $70
. They see earnings exceeding $4 per share in 2013, despite the
global economic headwinds, as the company expands into additional
[block:block=16]Goldman Sachs carries a loftier $82 price target
(down from $90), noting that management guidance now appears too
conservative. They see a company generating very impressive
free cash flow
, which should hit $6.25 per share by 2014. That means this former
highflyer now sports a free cash flow
in excess of 10%, using 2014 projections.
Risks to Consider:
Further market weakness could impede these stocks from
rebounding, as they have already been placed on investors' watch
lists as sell candidates for recent poor performance.
Action to Take -->
Allscripts is emerging as a deep value play with potentially
significant upside, while Tempur-Pedic simply looks like a good
company delivering a tepid outlook. Upside is likely more muted for
this stock relative to Allscripts, but the recent sell-off looks
like a clear overreaction.
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-- 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.