Among the biggest losers in Thursday's early trading are
Monsanto (
MON
)
,
Rambus (Nasdaq: RMBS)
and
Education Management (Nasdaq: EDMC)
.
|
Top Percentage Losers -- Thursday, May 27,
2010
|
|
Company Name (Ticker)
|
Intra-Day Price
|
Intra-Day
% Loss
|
52-Week High
|
52-Week Low
|
Monsanto (
MON
)
|
$48.24 |
-8.2%
|
$87.40 |
$48.25 |
Rambus (Nasdaq: RMBS)
|
$22.89 |
-8.0
%
|
$26.00 |
$12.27 |
Education Management (
EDMC
)
|
$20.89 |
-
9.0%
|
$26.98 |
$17.10 |
|
*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 11:27AM Eastern Standard Time . Click on
ticker symbols for up-to-the-minute price quotes and
percentage gain data.
|
Monsanto Plunges to New Lows
Shares of
Monsanto (
MON
)
are off -8% this morning and are now touching three-year lows as
the company cut its 2010 forecast and announced a revised pricing
strategy on a key product. The company's stock has been falling
sharply since the start of the year for a pair of reasons. First,
the company's focus on tightly controlling how farmers can use its
genetically-modified seeds has come under federal scrutiny and
created a backlash among farmers. Second, Roundup, the company's
herbicide, has seen steady market share losses from generic
products made in China.
This morning's sell-off focuses on Roundup. The company had been
seemingly oblivious to rising generic competition, and failed to
reduce pricing fast enough to protect market share. Now, management
has decided to cut prices for Roundup, which will lead to sharply
lower profits. Fiscal (August) 2010 profits will likely be a little
more than half the fiscal 2009 earnings. This is the second time in
six weeks that management has sharply lowered its outlook. One of
the reasons that shares of Monsanto performed so well from 2005 to
2008 is that forecasts were perpetually raised. Now, management
must prove that this new lower forecast represents a baseline that
will eventually be raised.
Yet it's worth noting that Monsanto has become one of the most
innovative agricultural firms in the world, regularly developing
cutting-edge products that boost farmers' yields. That has helped
farmers make more money while also enabling the company to garner
strong prices and firm margins. The company still spends more than
$1 billion a year in R&D, and over time, Monsanto is likely to
move back on to the cutting edge.
Action to Take -->
Even with the sell-off, there is no hurry to buy shares now.
Management's lowered outlook likely represents a bottom, but it
will be at least several quarters - if not more - before management
can once again talk about sales and profit growth in future years.
And shares are simply not cheap enough yet on a price-to-earnings
ratio (P/E) basis to attract value investors. This is a name to
watch, not to buy.
Legal Delays Hit Rambus
Shares of memory chip maker
Rambus (Nasdaq: RMBS)
are off -8% today on word that the International Trade Commission (
ITC
) will delay a decision on whether
Nvidia (Nasdaq: NVDA)
and others violated Rambus' patents. Rambus, along with
Qualcomm (Nasdaq: QCOM)
, has made its name as a collector of royalties for the massive
base of intellectual property it has developed. Before the delay,
shares of Rambus had been near a multi-year high on expectations of
an imminent positive resolution to the matter. Yet this is more of
a delay then a real setback, as the ITC simply wants all parties to
weigh in on how a royalty deal between Samsung and Rambus will
affect the rest of the industry.
Rambus has always been a difficult stock to value. Much of its
profits come from royalties, and the timing of agreements creates
very lumpy revenue and profit results. The company was especially
active in securing new agreements in the middle of the last decade,
which pushed shares above $40 in 2006. Royalty revenue slumped in
more recent years, and shares now trade closer to $25.
Action to Take -->
Over the near-term, shares should rebound and push past the $30
mark, perhaps closer to $35. That's because the company is expected
to imminently win a patent case over memory makers Hynix and
Micron Semiconductor (
MU
)
, which could net the company close to $500 million in an upfront
license, and then more revenue from ongoing royalties. After that,
perhaps by the end of July, the company is still expected to
prevail in the case that was just delayed by the ITC. That could
net the company a similar windfall.
Weakness in Education Stocks
Though more than 90% of stocks are trading up this morning,
publicly-traded for-profit educational institutions are all moving
down a bit.
Education Management Corp. (
EDMC
)
is off -8%,
National American University (Nasdaq: NAUH)
is down -7%, while
DeVry (
DV
)
and
ITT Educational (NYSE: ESI
) are off nearly -3%.
The entire group has been under pressure in recent quarters on
concerns about high tuition costs and the very high amounts of debt
being taken on by students. As the PBS show
Frontline
noted earlier this month, student loan delinquencies at these
institutions are running at fairly high rates. This comes on the
heels of recent editorials that question whether a college degree
is suitable or even necessary for a wide swath of the work force.
Action to Take -->
Cost pressures are starting to pinch at many colleges and
universities, especially in the face of unpaid loans. This whole
sector may head even lower before any rebound.
-- David Sterman
Staff Writer
StreetAuthority
Disclosure: David Sterman does not own shares of any security
mentioned in this article.