Time to Pick Up the Pieces?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Everybody likes a good story of redemption. Particularly when it entails buying a formerly high flying stock after it has nosedived; and then profiting from when it takes off again. Green Mountain Coffee Roasters (NASDAQ: GMCR), Chespeake Energy (NYSE: CHK) and Diamond Foods (NASDAQ: DMND) are starting to move in that direction.
As with every light on Broadway, any stock that falls is a tale of heartbreak and woe for its shareholders. Green Mountain Coffee Roasters dropped sharply when Starbucks introduced the Verismo, its individual sized expresso machine, as a competitor in the single cup serving market. An accounting scandal involving upper management crushed the share price of Diamond Foods. Corporate governance issues have also bedeviled Chesapeake Energy. But each has started to rise again in recent market action.
For the last week of trading, Green Mountain Coffee Roasters was up 18.53%. Year to date, however, Green Mountain Coffee Roasters has fallen by 45.37%. Green Mountain had soared in 2011 in large part from Starbucks agreeing to distribute its coffee through the Keurig Brewer and the K-Cup, a one-cup unit; and agreements with Dunkin Donuts and Caribou Coffee. When Starbucks moved in another direction with the Verismo, so did the share price of Green Mountain Coffee.
Now around $24.50, it is down from its 52-week high of $115.98. However, sales growth and earnings-per-share growth for Green Mountain Coffee Roasters are up more than 30% each. Its price-to-earnings growth ratio is very bullish. Green Mountain Coffee Roasters still has contracts with Starbucks and Caribou Coffee to distribute coffee through the K-Cups. Dunkin Donuts sells K-Cups under its own brand name.
Chesapeake Energy bet heavily on the continued rise of natural gas and lost...big time. That and other corporate governance issues has the stock around $20 a share, down from a year high of just over $35. Chesapeake Energy is coming back, up 12.71% for the last week of market action and 10.05% for the last month. In a very bullish sign, legendary investor Carl Icahn has swooped in to gobble up the low-priced shares. Like Green Mountain Coffee Roasters, sales growth (50.06%) and earnings-per-share growth (65.80%) are both soaring for Chesapeake Energy on a quarterly basis, too.
An accounting scandal having to do with the pricing of walnuts claimed the chief executive officer and others at Diamond Foods, a snack product company. Now around $19.15 a share, Diamond Foods is well below its 52-week high of $95.93. Earnings-per-share growth this year for Diamond Foods is rising by 62.56%. The price-to-earnings growth ratio is very bullish at 0.43. The price-to-earnings ratio is just 8.63. Over the last week of trading, Diamond Foods jumped by 11.60%.
A comparison with Nokia Corporation (NYSE: NOK) and Research-in-Motion (NASDAQ: BBRY), two companies, once soaring in price, that do not appear destined for a recovery, is useful to demonstrate how Chesapeake Energy, Green Mountain Coffee Roasters and Diamonds Foods are rebounding. On a quarterly basis, sales growth is down by 29.28% for Nokia. For Research-in-Motion, utilizing the same standard, sales growth is off by 42.67%. Earnings-per-share growth for Nokia on a quarterly basis is plunging by 370.32%. Research-in-Motion has quarterly earnings-per-share growth plummeting more than 174%. By contrast, quarterly sales growth and earnings-per-share growth are both very healthy for Diamond Foods (31.79%, 22.61%), Green Mountain Coffee Roasters (36.65%, 31.76%) and Chesapeake Energy (50.06%, 65.80%).
Each of these stocks has tremendous appeal for growth investors. For those focused on value investing, both Diamond Foods and Chesapeake Energy are selling below book value. All, however still have very high short floats: Chesapeake Energy with 13.82%, Diamond Foods with 49.11%, and Green Mountain Coffee Roasters with 17.74%.
The carnage appears to be over for Chesapeake Energy, Diamond Foods and Green Mountain Coffee Roasters. All have bounced back from year lows. Sales and earnings-per-share growth are rising for each company. In a sign of confidence, institutional ownership is still over 74% for each. When institutional investors such as mutual funds and hedge groups are remaining with a stock that was most likely purchased at a much higher level, that is a bullish sign for individuals to buy at the much reduced price so as to profit from the recovery.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters, and short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters. Motley Fool newsletter services recommend Green Mountain Coffee Roasters and Nokia. 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.If you have questions about this post or the Fool’s blog network, click here for information.
