Four Market Losers: Two That Are Worth a Look

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The market traded with slight loses on Thursday, after two sessions of significant gains. However, the losses and the trend on Thursday were by most accounts, considered a fairly flat session. Therefore, stocks that traded with large loss had major developments that led to the loss. With that being said, I am looking at the biggest losers, the catalysts, and determining whether any are a buy.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Ticker</p> </td> <td> <p>1/3/13 Performance</p> </td> </tr> <tr> <td> <p><strong>Mellanox Technologies</strong></p> </td> <td> <p><strong><span class="ticker" data-id="209848">(NASDAQ: <a href="">MLNX</a>)</span></strong></p> </td> <td> <p>(17.14%)</p> </td> </tr> <tr> <td> <p><strong>Family Dollar Stores</strong></p> </td> <td> <p><strong><span class="ticker" data-id="203560">(NYSE: <a href="">FDO</a>)</span></strong></p> </td> <td> <p>(12.96%)</p> </td> </tr> <tr> <td> <p><strong>Allot Communications</strong></p> </td> <td> <p><strong><span class="ticker" data-id="214997">(NASDAQ: <a href="">ALLT</a>)</span></strong></p> </td> <td> <p>(24.23%)</p> </td> </tr> <tr> <td> <p><strong>Longwei Petroleum </strong></p> </td> <td> <p><strong><span class="ticker" data-id="222782">(NASDAQOTH: <a href="">LPIH</a>)</span></strong></p> </td> <td> <p>(72.85%)</p> </td> </tr> </tbody> </table>
  • After the market closed on Wednesday, Mellanox revised its top line guidance for Q4, between $119-$120 million; about $30 million less than previous guidance. The company blamed weaker demand, macro issues, and a technical issue that caused $20 million in orders to be delayed. The new guidance still represents gains of more than 60% year-over-year and considering the guidance, I think the damage was minimal. The stock has now lost more than 50% of its value in the last three months as investors feared the possibility of slowed sales. It looks as though investors were correct. However, a P/E ratio of 22.71 is cheap for a company growing by more than 50% year-over-year. As a result, this is definitely a stock I’d watch, but also be cautious with due to management’s big miss.
  • The dollar store space continued to show weakness on Thursday after Family Dollar posted an earnings report that missed expectations. The company posted top-line growth of 12.7% year-over-year and actually exceeded expectations but missed on its bottom line. Investors seem to be worried about the company’s expenses, yet I think the stock may be a “buy”. The company did say they were seeing heavier traffic and are increasing their market share. Therefore, with a forward P/E ratio under 12.0, I can’t help but to be a little optimistic.
  • After a five year return of more than 330%, shares of Allot Communications have slid lower and were once again crushed on Thursday following a downgrade. Oppenheimer had been one of Allot’s biggest supporters, therefore when the firm predicted a Q4 miss and downgraded the stock, it created a selling frenzy. The company has now lost nearly 50% of its value in the last three months, yet is still somewhat expensive. Therefore, considering its loss, I don’t think it would be a wise investment at this time.
  • Last week I said that Bill Ackman’s short thesis on Herbalife was the best single piece of research that I’ve ever seen conducted. However, on Thursday I read The GeoTeam’s short thesis on Longwei Petroleum and I have quickly changed my mind. The research laid out detailed analysis of the company’s operations which were based on actual physical evidence such as recorded interviews, SAIC filing analysis, and live video surveillance. The GeoTeam called its research on Longwei Petroleum the strongest conclusion of fraud to date. A good short thesis is always more difficult than a bullish stance, and The GeoTeam hit one out of the park with this research, leading to a stock decline of more than 70%. I’ll be curious to see how the company responds, but at this time, I would not touch the stock. Click here to read the research report.

Sometimes the best time to buy a stock is right after a significant decline. However, these large declines can also be the start of a larger trend, therefore investors must be careful. Personally, I believe that both Family Dollar and Mellanox are worth the due diligence. Ultimately, the decision is yours, but I would at least spend some time to determine if any might fit well into your portfolio. 

BrianNichols has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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