PWAV, DRL, ALTI: Slumping Stocks in Increasing Market, How Much Can They Fall?

It is usually not considered a great investment strategy to buy stocks when the prices are dropping. This kind of buying is generally compared to catching a falling knife which can hurt the investors. While there is certainly some element of truth in this logic, equally valid and much less talked about theory is that asset prices dropping without a fundamental reason is a trend that reverses itself very quickly.

Stocks are inherently risky assets and thus, the scary axioms have a longer period in investors’ minds. Powerwave Technologies Inc (NASDAQ: PWAV), Doral Financial Corporation (NYSE: DRL) and Altair Nanotechnologies Inc (NASDAQ: ALTI) are some companies which closed the previous week with deep cuts. Somewhere the pounding seems to be overdone. Here is a closer look:

Powerwave Technologies Inc (NASDAQ: PWAV) provides solutions for wireless communications networks in the United States. Results weren’t up to the mark for the quarter ended April and the stock has been coming down in the last 3 months, but last week’s fall of 23 per cent on guidance readjustment was just too much. The stock has entered into the oversold zone and apart from a technical bounce-back, creating fresh long positions could be a good contra bet. At $2.19, the stock is available at almost year old prices and despite the negative outlook; the company has made some key learnings which would help it in battling the high debt issue. The acknowledgement by the management in this regard at the last analyst call is a further proof.

Doral Financial Corporation (NYSE: DRL), a bank holding company, has major operations in Puerto Rico. It has lost 20 per cent in the last week and currently trades at $1.94, a good 87 per cent above its annual low level. The key differentiator is the fact that the stock recently made a fresh year high of $2.74 and all the correction has taken place on this high base. At current market price, it trades at key support levels and may stage a bounce back of 5 per cent in the days to come but I’m not banking on a long term rally on this one.  

Stock of battery maker Altair Nanotechnologies Inc (NASDAQ: ALTI) has been reduced to bare bones, no-flab valuations after 28 per cent drop in the last week alone. It made fresh annual lows on its way down and currently trades at $0.74. I’m not a huge fan of battery companies that make energy storage devices for electric cars, but the stock, admittedly, looks very compelling at current levels.