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As the Market Tumbles, These 4 Stocks Are Beating Estimates
11/12/2012 2:30:00 PM
By: David Sterman
It's official: The stock markets are now in acorrection . At least the Nasdaq is, having fallen more than 10% from its52-week high (it's more than -10% right now). The challenge withmarket corrections is that they can turn into bear markets (abear market is defined as a 20% drop from the peak).
Indeed there are ample reasons for continued caution, as I noted a month ago .
Yet even as the market is getting weaker, clear values are starting to emerge. And for many, the time is at hand to start building new positions in stocks that appear to have been unfairly tarnished in this sell-off. Indeed, a surprising number of companies that are still being pushed lower in this tough market have reported estimate-beating third-quarter results and solid forward guidance. Here are four examples...
1. Leapfrog (NYSE:
Yetshares have fallen roughly 15% since Leapfrog results were reported last Monday, Nov. 5, perhaps because management also intends to hike marketing spending. Leapfrog may also be suffering from a perception that rivals (such as Toys 'R Us, which is selling its own product) may eat into sales. But the raised forward guidance suggests that competitive fears are overblown.
The fact that shares have now fallen 30% from the 52-week high and now trade for around 10 times projected 2012 profits has created a fresh entry point for investors.
2. Cubist Pharmaceuticals (Nasdaq:
Shares of Cubist made a strong upward move -- from $38 in late June, to around $50 -- and the recent third-quarter results may have simply been a reason for investors to book profits. Shares are off nearly 15% since results were released on Oct. 18 to a recent $41. Merrill Lynch figures shares will move toward their $56price target as we get closer to another round of Phase III clinical trials slated to get underway in early 2013.
3. Sandisk (Nasdaq:
The reason why analysts have boosted forecasts: The NAND market, which is SanDisk's primary focus, is now characterized by a healthy balance between supply and demand, which should enable pricing to stay firm. The recent pullback has left shares trading at 12 times projected 2013 profits.
Why did shares tumble after this maker of digitized health records delivered estimate-beating third-quarter results? Because management noted that some of the business expected to land in the fourth-quarter came early, so they took down this quarter's sales and profit guidance by a corresponding amount. The company also concedes that its target markets are growing more competitive. Still, analysts' estimates for all of 2012 have remained largely intact. Analysts still expect sales and profits to grow more than 25% in 2013.
AthenaHealth is shaping up as a prime beneficiary of recently-passed Affordable Health Care Act, as hospitals and physicians will be pushed to put down the pen and paper, and pick up the computer (or tablet as the case may be).
This is a case of high-growth stock falling victim to unrealistic growth projections. Yet with those expectations now sharply reduced, investors are no longer shouldering that burden. Indeed it's always wise to focus on high-growth businesses only when they have temporarily fallen out of favor.
Risks to Consider: These stocks may be hard-pressed to rebound while the market stays in a funk.
Action to Take --> Earnings season is a fertile time to seek out good companies that are saddled with bad stock prices. A falling market tends to punish stocks of all stripes, so if the market grins lower for here, you need to step up your research efforts to find good companies that are "on sale."
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.