Think of it as the pause that refreshes. The Dow Jones Industrial Average 2 Minute (Dow Jones Indices:.DJI) finally broke its string of consecutive days of posting gains at 10, falling 25 points but still sitting at an elevated 14,514. In two weeks’ time, the index has jumped 460 points, or 3.3%, and it’s up almost 11% so far in 2013.
That’s simply a pace that can’t be maintained without giving something back, and as March has come in like a lion, it wouldn’t be a surprise to see it exit like a lamb. The following three stocks weren’t exactly sheep being led to slaughter, but they fell harder than did the Dow. Still, don’t go running over the cliff with them like a bunch of lemmings just yet: This could just be a temporary situation. Let’s first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.
|Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)
|Geron Corporation (NASDAQ:GERN)
|STEC, Inc. (NASDAQ:STEC)
There was nothing pretty about the drop experienced by beauty-products retailer Ulta Salon, despite posting fourth-quarter earnings that beat analyst expectations. As typical with growth stocks, however, if the outlook doesn’t continue that mean streak, the market gives it a smackdown and Ulta offered up guidance for the first quarter that disappointed.
Ulta also suffered an ugly drop last month, when its CEO suddenly jumped ship to join the arts-and-crafts store Michael’s, and coming as it did a few months after the CFO bolted, it was looking as though the C-suite was running for the exits. So an earnings report that didn’t hit on all cylinders of strong revenues, strong earnings, and better guidance, it was doomed to tumble. The old Meat Loaf song “Two Out of Three Ain’t Bad” doesn’t apply when it comes to jittery investors.
Yet Ulta could be a real Cinderella stock here, a scullery maid covered with soot that disguises a beauty queen underneath. In addition to the guidance that came in at the low end of its long-term forecast, some of the ash masking its features include a better than 20% increase in inventories in the quarter and a lot of “investments” in new stores, prestige boutiques, and supply chain and warehouses. Yet it’s because of Ulta’s investment in its future that inventories rose, and while a portion of the increase was making sure it had enough stock on hand for the holiday season (suggesting not as much of it sold as planned), it is still experiencing strong comps (up 8.8%), and analysts maintain their long-term earnings growth projects of around 25%.
It seems the selloff in shares was overdone, and Ulta could become the belle of the ball when it’s all over.
Biotech Geron Corporation (NASDAQ:GERN) also posted disappointing results the other day, and even though its losses narrowed, it really is as ugly a stock as it appears. Ugly is as ugly does, and analysts at Stifel Nicholas called it out as if it was stricken with the plague, knocking it all the way down to a sell rating because its clinical study path is “flawed and sluggish.”