Among the biggest losers in Thursday's early trading are
Gammon Gold (NYSE:
Top Percentage Losers --Thursday, June 17,
Company Name (Ticker)
|Gammon Gold (NYSE: GRS )
|DryShips ( Nasdaq: DRYS)
*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 11:30AM Eastern Standard Time . Click on
ticker symbols for up-to-the-minute price quotes and
percentage gain data.
A Proxy for an Industrial Rebound
If a company delivers a positive
every quarter, is it sill a surprise when they do it again?
, which makes a wide range of hydraulic and mechanical devices used
in a host of industrial applications, just topped profit estimates
by 18%. The company also topped estimates by at least that much in
each of the last two quarters as well, so investors are shrugging
off the results, pushing shares down -6% in Thursday trading.
But it's hard to deny the impressive +17% rebound in sales. This is
unequivocally good news for investors involved with any industrial
stocks, as it points to a robust rebound for American
manufacturers. Unless the incipient economic slowdown in Europe
starts to crimp U.S. exports, investors can expect further gains
ahead for this sector, as this upturn is no longer about inventory
replenishment, but instead is about actual end-user demand.
Action to Take -->
Industrial stocks never garner a high multiple due to the cyclical
nature of their business. Even though fiscal 2011
estimates may rise from the current $1.30 to about $1.50, shares
are fairly valued at about 12 to 13 times that forecast. Actuant
exceeded $1.66 a share in earnings only once in the last decade, so
it's unreasonable to expect profits to spike much higher beyond
2011. Instead, view this earnings report as a validation for the
entire industrial sector.
A Lose-Lose Fight
"Hey man, they're shuttin' down El Cubo." That's the likely
sentiment being shared in Guanajuato, Mexico, as
Gammon Gold's (NYSE:
management decided to close that gold mine rather than acquiesce to
labor's demands. The timing is pretty lousy -- Gammon had just
recovered from a disappointing mine deal in the Chihuahua region of
Mexico. Analysts had recently turned bullish again on the company's
prospects that both mines would produce a high level of output in
2010. Shares are down -10% in Thursday trading and may fall even
further if this decision proves permanent. But there's a good
chance that management and labor will step back from the brink, as
this is a lose/lose outcome for both parties. Then again,
management and the union have been leveling some fairly serious
accusations at each other. Perhaps a sale to another mining firm
will be the endgame.
Action to Take -->
If shares fall further and signs emerge that this impasse can be
resolved, then shares will post a nice rebound, though that window
won't last for long. It's certainly worth monitoring for a possible
DryShips' Declining Fortunes
In a bid to boost a stock, management can sometimes be too clever
by half. Executives at
weren't content to simply operate a fleet of ships that carry dry
goods such as commodities. They bet the company's capital on a new
unrelated venture to build a fleet of oil-drilling rigs that would
give it exposure to a second industry. No matter that the company
needs another $1 billion to complete construction of the four rigs
-- it assuaged investors' concerns by noting that this second
division would make for a very appealing
, removing that financing burden.
And then the Gulf oil spill happened. A sudden drilling slowdown in
that market has freed up many rigs to move elsewhere in the world,
and that's pushing down the lease rates that rigs can garner, so
the prospects for an
just got pushed out into 2011. As a result, DryShips can wait it
out and hope for a demand rebound in 2011 or sell its partially
built rigs at a loss now.
Action to Take -->
Adding insult, the core dry bulk shipping division isn't looking so
hot right now either. If and when both of these divisions are
operating on a healthier basis, analysts think the company will be
valued at more than $10 a share. But right now, the stock is
slumping another -6% to around $4. This is a high-risk/high-reward
scenario, and management won't be so foolish as to allow the
unfunded oil rig division to drag the whole company into
bankruptcy. How they navigate out of this morass will determine
when shares can finally start to gain some respect.
-- David Sterman
Disclosure: David Sterman owns shares of Neither StreetAuthority
and LCC nor the editor hold positions in any securities mentioned
in this report..
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