Four Sell-Offs that Might Create Opportunity

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

Last Friday there were numerous high-profile stocks to fall lower -- some caught my attention while others did not. The ones that did catch my attention were violent falls, or aggressive selling, due to fundamental and technical fear. However, in the midst of these downtrends there could be value, and I am looking at four such situations.

Bad News for Intel Might be Priced Into the Stock

Intel (NASDAQ: INTC) has lost almost 20% of its value in the last year, and sustained one of its biggest blows on Friday after announcing earnings, losing 6.31% of its value. The stock slid lower after announcing guidance that was slightly below consensus and then guided for major increases in spending on its capex budget.

Intel’s high capex spending is a result of a $2 billion upcoming investment on 450mm-wafer developments, in an attempt to boost sales of netbooks and similar products. Obviously the market responded badly. However, earnings weren’t that bad and neither was guidance. The company still expects low-single digit growth in 2013, which is impressive considering the PC market. Therefore, with a forward P/E ratio of just 10 and a dividend yield of 4.2% for 2013, I think this loss might be an opportunity, as all bad news is priced into the stock.

Deep Value that Could Reverse

After one of the best three-year runs of any stock in the market, Mellanox (NASDAQ: MLNX) has now lost more than 40% of its value over the last six months. The company has fallen due to fears of new competition from Intel, and recently issued a Q4 earnings warning thanks to weaker demand, macro issues, and a technical problem. However, this is a company that could still easily double, even triple, in size over the next two to three years, and has all potential problems fully baked into its valuation.

On Friday, Mellanox lost more than 3% of its value following the Intel earnings, which is somewhat ironic seeing as how fears of Intel’s growth are what initially led to its decline. However, this is a company with a valuation that is hard to explain. It’s currently guiding for revenue of $120 million, which would be growth of about 65% year-over-year. In a market that rewards companies with such aggressive growth, Mellanox’s forward P/E ratio of 14.46 is highly attractive. Therefore, it might be wise to explore a potential investment.

After Breaking Out, Arena Could Go Higher

After a strong start to 2013, and after finally breaking out of its $8.00-$9.50 trading range, shares of Arena Pharmaceuticals (NASDAQ: ARNA) fell considerably lower on Friday. The stock fell 6.51% on more than twice its average three-month volume, and with no news. Therefore, it was a technical fall, but the fact that it did break out of its six-month trend is still something to celebrate. I would now watch this stock closely, because if it begins to trade higher, it could very well continue to rally back above $10.

Amarin Attempting to Gain Momentum

Amarin (NASDAQ: AMRN) has been under heavy selling pressure since December, after rumors of a potential buyout were put to rest with the company hiring a sales team. The stock had finally begun to rise in the last week, but then sold off aggressively on Friday.

I view the price action in shares of Amarin as a grand opportunity. First, almost all multi-billion-dollar clinical stage biotechnology companies lose value following an FDA approval, in the waiting period prior to launch. Second, it’s trading with a valuation of just $1.27 billion, cheap for a company that could reach sales of more than $1.5 billion, $300 million in the first year. As a result, because of valuation, I could see it going higher at some point in the near future.

Conclusion

Each of these stocks saw significant loss on Friday, and I believe that each is now presenting some level of value. Of course more due diligence is required before making an investment decision. However, if you are looking to add a value stock to your portfolio, then one of these four companies might be a good place to start.


BrianNichols has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure