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The Veeco Selloff: 7 Reasons It's Overdone

NEW YORK ( TheStreet) -- The downgrades of Veeco (VECO - Get Report) and Aixtron (AIXG - Get Report) on Tuesday put the brakes on the recent rally in LED stocks, but it was the Veeco downgrade to a hold by Citigroup that really exacted the biggest toll on shares.

Veeco shares were down 16% on Tuesday, whereas Aixtron shares were down 4%.

For two stocks that are in the same exact business and typically trade as a basket trade on the outlook in the LED sector, it's a little confusing to see such a disparity in the trading on Tuesday. Sure, it was negative sentiment for both Veeco and Aixtron, but the 12% additional decline in Veeco shares didn't seem warranted. Veeco had the biggest loss on the market in Tuesday trading. So was the Veeco selling overdone?

All the LED stocks were down and trading volume was elevated for the entire sector.

All it takes -- especially after a rally, which has been going on for over a month -- is for a major Street firm to step up and renew everyone's worst fear of something going wrong for the volatile LED sector, and the LED stocks will be under the gun once more. LED stocks have been on a run since a late summer/early fall selloff, led by Cree (CREE - Get Report). Over the past three months, the rise of LED stocks far surpasses the gains in the Nasdaq and S&P 500, up 16% and 11% respectively.

Citigroup is stoking renewed debate about China slowing its subsidy support for the purchase of the MOCVD equipment sold by Veeco and Aixtron. Yet the debate about China's role in supporting to continued growth of the LED market through subsidies has been raging throughout the past year.

Indeed, at the open on Wednesday Veeco shares were back up by 4% and the LED stock hit its average daily volume within an hour of the open. It's hard to imagine a stock not getting a little trading pop a day after a 16% decline, though. Aixtron shares slipped slightly at the open.

In light of all this, here are 7 factors to consider in making call on whether the Veeco selloff went a little too far....

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