• Akamai Tech (NASDAQ: AKAM) cut to Sell at Goldman Sachs.
• American Electric Power (NYSE: AEP) Cut to Hold From Buy at Jefferies.
• Apple (NASDAQ: AAPL) started as Outperform at Oppenheimer.
• Bidz.com (NASDAQ: BIDZ) Started as Buy at Merriman Curhan Ford.
• CDC (NASDAQ: CHINA) Cut to Neutral From Buy at Piper Jaffray.
• First Marblehead (NYSE: FMD) Raised to Market Perform at FBR.
• Level 3 Communications (NASDAQ: LVLT) Raised to Market Perform from Underperform at Wachovia.
• Panera Bread (NASDAQ: PNRA) Started as Buy at Jefferies.
• Salesforce.com (NYSE: CRM) Raised to Buy From Hold at Jefferies.
• Staples (NASDAQ: SPLS) Started as Buy at Citigroup.

Jon C. Ogg
May 22, 2008

Usually a stock is affected because its industry is being pushed underwater, as has happened with the mortgage fiasco, or because of several bad decisions by management which simply do so much damage that shareholders hit the exits

We have listed ten companies which could fall by more than half next year. For each one we have given specific reasons. These are the issues that Wall St. has to debate when it considers whether these firms will face significant sell-offs.

Citigroup (C). It would be nice to think that Citi has already taken as much of a beating as it can. The stock has fallen from $57 to $31 this year. Now, could it go to $15? Moody’s recently downgraded Citi saying that it believed that the bank could post more net losses next year. The firm still has a $200 billion mortgage book. Citi might also have to cut its dividend to raise cash. That could make it a much less attractive investment, at least short-term. A deep recession or more trouble in the mortgage-backed securities market could halve Citi’s shares.It has happedned to the bank before three times in the last 35 years, most recently in 1990.

Baidu (BIDU) The Chinese search engine is well ahead of its top rival, Google (GOOG) in the world’s most populated country. That may be why the company’s shares have jumped from under $100 in April to $356. But, Baidu trades at 62 times sales. Google trades at 14 times. Baidu is so high because Wall St. expects online search to become the next big thing in China. But, right now that is not the case. Baidu’s revenue in the third quarter was $66 million. That was double the year before, but is still a tiny number. The Chinese company faces two challenges. One is that Google is going to do whatever it can to take share from Baidu. The US company can’t afford to be a distant second in a market as large as China Baidu has been helped by the fact that the Shanghai Composite is up almost 120% in the last year. If there is a big sell-off in China stocks, Baidu will get pulled down as well.

Journal Register (JRC) This company is probably weaker than most other newspaper chains. It trades at $2.25, down from its 52-week high of $7.76. The company’s operating income is shrinking because of the fall-off of newspaper advertising. In the last quarter, Journal Register had operating income of $17.6 million and interest expense of $10.7 million. Based on newspaper industry trends, the company’s revenue could drop another 8% next year. That means debt service could become a problem.

Ford (F) Ford is a turnaround which almost happened. The company brought in a new CEO and he was able to cut costs. The latest UAW contract should pare Ford’s annual costs by as much as $2 billion. This takes $23 billion in liabilities off Ford’s books. And, the company will pay $13.2 billion into the new UAW benefits fund. Ford’s problem is that it keeps losing sales. The company’s domestic unit sales dropped 12 consecutive months through October and made a small recovery in November. Ford now has about 15% share in the US market. Aside from the fact that Ford’s piece of the pie could keep shrinking, forecasters predict that US car and light truck sales could fall from just over 16 million units this year to 15.5 million next year. In a deep recession, that number could go below 15 million which would take about $25 billion in revenue out of total domestic vehicle sales. Ford’s shares are at $6.79, near a 52-week low, and the company only has a market cap of $14.3 billion.

VMWare (VMW) Almost everyone expects that VMWare shares will be up next year. The company owns the virtualization solutions market which can help servers run much more efficiently, saving enterprises substantial sums of money. After its IPO. the stock moved from $51.50 and peaked at $125.25. It trades at just over $86 now, which indicates that it already may be vulnerable to selling pressure. With a forward P/E of 74, maybe it should be. The market for VMW’s products could slow, but that is unlikely. One securities analyst recently pointed out that VMWare sells software licenses which involve large upfront purchases. That might hurt revenue in future years. And, Microsoft (MSFT) is coming to market with its own virtualization technology, which it calles Hyper-V. The product could be a bust, but Redmond does have a huge foot in the server door with it Windows platform.

Countrywide Financial (CFC) The shares are already down to $9 from a 52-week high of $45.26. This is the most visible casualty of the mortgage mess. The housing market could still sink the company. Nearly half of the firm’s portfolio is backed by California property. If foreclosures continue to spike and the values in the housing market plummet further, Countrywide simply does not have the capital to weather another full year in this climate. Just count the defaults. If they get too high, CFC may not make it. Zacks and Citigroup recently issued negative research comments about the company.

Bidz.com (BIDZ) The company has been in a running fight with research firm Citron. The fight includes claims that that the company’s inventory levels are rising at least 300% higher than the company’s revenue run rate. The company recently reported a good third quarter with net revenue of $40.1 million, a 48% increase compared with $27.1 million reported for the third quarter of 2006. Barron’s has pointed out that short sellers are going after the company and will do whatever they can, within the boundaries of fair play, to keep the shares moving lower. Wall St. is clearly worried. The stock had a 52-week high of $22.50 and now trades at $8.56. There is a lot of evidence that online spending has not been as good as expected this holiday season. Audience research firm Alexa actually shows Bidz traffic falling from early November to mid-December.

Micron Technology (MU) The company has already lost close to half its value in the last year, with the stock going from a 52-week high of $14.31 to $7.82. The firm’s core business in memory chips is being seriously affected by sharply falling prices. Jefferies & Co recently made negative comments on MU and revised revenue down and losses up. The price cutting in the NAND and DRAM markets is furious now. MU needs reasonable operating income to fund R&D. That may not happen. With product pricing in some of its key markets down 40%, 2008 could be a very poor year.

LDK Solar (LDK) A former employee reported that the company had inventory problems. This crashed the shares and they moved from $74 in September to $27 in late November. An audit determined that there was no inventory problem and the shares moved back over $68. Several analysts think the news is a little too good. Goldman Sachs has a "sell" on the stock with a price target of $33. The investment house thinks that the company is giving away a lot of margin to get long-term contracts. CIBC also has a "sell" rating on the shares. LDK has additional market risk. Its shares are up, to some extent, because of the huge increases in the prices of most Chinese stocks. If there is a sell-off in Shanghai or Hong Kong, odds are that the stock goes out with the tide

PMC-Sierra (PMCS) The designer and marketer of communications semiconductors has not been doing well. Shares have dropped from a 52-week high of $9.83 to the current $6.76. Banc of America Securities recently rated the stock as a "sell". Short interest in the company rose sharply at the end of November. When the company released its third quarter results, the CEO announced that he would be leaving. In that quarter, revenue was flat at just over $117 million. Net income was a negative $5.9 million. PMC’s great risk is that spending in the telecom industry is slowing. If build-outs of new technology like 3G wireless continue to decelerate into 2008, the company can do little to find new revenue. With other struggling companies like Conexant (CNXT) in the same market, price cutting is a part of the business.

Douglas A. McIntyre

The company investigation also notes "and others in connection with recent trading in the Company’s securities."   Bidz.com said it is concerned that recent trading activity may not be in compliance with SEC guidelines and even mentions naked short selling.

Bidz.com has also warned taht trading may be volatile as shorts are covered and the like.  That might be an understatement since this stock was cut in half.

This one caught more traders off guard because it had been recently added to the Investors Business Daily list.  This stock did briefly qualify for review in our weekly "10 Stocks Under $10" but it didn’t last under $10 very long.

Bidz.com shares are trading up 8% at $10.91 in pre-market trading.

Jon C. Ogg
November 29, 2007

Concerns about earnings and a very negative report from Citron Research have sent the shares from as high as $22.48 early Monday to $10.17 today.

Someone really made out on this one.

Douglas A. McIntyre

The company had recently announced third quarter revenue of $40.1 million, a 48% increase compared with $27.1 million a year ago, and it reaffirmed its guidance for Q4, fiscal 2007, and 2008.  In short, that is not raised guidance.  Here is the guidance:

• Expects revenues for the 2007 fourth quarter to be in the range of $56-$58 million, and expects pre-tax income of approximately $5.6-$6.0 million.
• For 2007, it expects revenue in the range of $180-$182 million and gross margin of approximately 27-28%. The Company expects pre-tax income of $18.0-$18.5 million. The Company expects its effective tax rate to be approximately 20.2%, and expects to end the year with approximately 26.4 million fully diluted shares outstanding.
• For 2008, it expects revenues to be in the range of $225-$230 million, pre-tax income of approximately $23.5-$25.5 million and gross margin of approximately 27-28%. The Company expects its effective tax rate to be approximately 40%. The Company expects fully taxed GAAP EPS of $0.47-$0.51, and expects to end the year with approximately 30.0 million fully diluted shares outstanding.

In short, this is a bit more clear now that it isn’t processing the earnings.  Its share count is going to grow and its tax rates are going up.  Considering this one just appeared on the #2 spot on the IBD 100 this weekend, this is going to have some pretty infuriated traders behind it.

Shares are down some 19% at $13.31 today in early trading.  The 52-week trading range is $4.90 to $22.50, and shares are now down more than one-third from yesterday’s early highs.

If this one falls too much more, we’ll be looking at it for our own "10 Stocks under $10" newsletter.

Jon C. Ogg
November 27, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.