Bad News Sends Stocks To Woodshed

NEW YORK ( TheStreet) -- Over the past two weeks several companies announced negative news about their businesses and their stocks got hammered in what I describe as being taken to the woodshed. An investor taken by surprise when this happens often becomes like a deer in the headlights wondering what to do.

With a buy-and-trade strategy the first decision an investor needs to make is whether or not the stock-specific negative news is a game changer. Do you wish to continue to own the stock? If the answer is no, simply get out on the old theory that your first loss may be your best loss. If this becomes your decision don't look back as there are thousands of other stocks to choose from.

One reason to stay with a woodshed stock is that www.ValuEngine.com still rates the company with a five-engine strong buy rating, or a four-engine buy rating. Regardless, if your investment decision is to stay with a woodshed stock you must then decide on a price level at which to try and catch the falling knife. This could be weakness the 50-day, 200-day or 200-week simple moving average, or a prior low. With my methodology, it could be a buy on weakness to a value level from my proprietary analytics.

The nine stocks profiled here include an update on the four I profiled a week ago in my post, 4 Stocks Taken to the Woodshed .

All nine are just below their fair value price with seven of nine undervalued by double-digit percentages.

Even after going to the woodshed we have one stock rated at strong buy, six rated buy and two rated hold.

Four of nine stocks are higher over the past 12 months despite being taken to the woodshed. One is still up 70.2% from a year ago. Five have lost ground by more than double-digit percentages, with one down 34.3%.

All nine are projected to be higher over the next 12 months by 3.7% to 12.4% in an environment expected to be less volatile.

Only one stock has a single-digit trailing 12 month price-to-earnings ratio, while three have P/E above 20.0.

Only one stock is above its 200-day SMA, which held as the price at which to buy to catch that falling knife.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC limit order to sell on strength.

Darden Restaurants ( DRI) ($46.66): Has a buy rating, but gapped below its 200-day SMA without a value level at which to buy. The weekly chart shows the 200-week SMA at $43.96, which is the buy price as long as the stock remains buy-rated. My annual pivot is $48.62 with a semiannual risky level at $52.09.

Freeport-McMoRan ( FCX) ($31.70): Has a buy rating with the stock below its 200-day SMA. FCX is also below its 200-week SMA at $39.13. My semiannual value level is $25.34 with this week's risky level at $34.51.

Gap ( GPS) ($31.81): Has a strong buy rating and the stock held its 200-day SMA at $30.51 on weakness, as the price at which to catch this falling knife. My quarterly value level held at $30.86 with a weekly pivot at $32.27 and monthly risky level at $37.68.

Kohl's ( KSS) ($44.09 vs. $44.65 on Dec. 3): Has a buy rating, and my annual pivot at $44.22 should provide a magnet with my monthly risky level at $47.12. Without a value level consider the Sept. 12, 2011, low at $42.14 the key chart support.

TIBCO Software ( TIBX) ($20.37): Has a hold rating and the stock was already below its 200-day SMA, when the bad news hit for this company. Last Wednesday's low was a test of the 200-week SMA at $18.99, which proved to be the price at which to catch this falling knife. My annual value level is $16.82 with an annual pivot at $20.05 and semiannual risky level at $23.99.

Tiffany ( TIF) ($58.42 vs. $58.98 on Dec. 3): Still has a buy rating with the stock still below its 200-day SMA. The 200-week SMA is a buy level at $52.73. My monthly value level is $50.15 with a semiannual pivot at $57.66 and annual risky level at $64.07.

Vera Bradley ( VRA) ($23.89): Has a buy rating and the stock gapped below its 200-day SMA following its reason to be taken to the woodshed. My monthly value level is $19.15 with my semiannual risky level at $27.05.

Verisign ( VRSN) ($36.28 vs. $34.15 Dec. 3): Still has a hold rating and is well below its 200-day SMA. My weekly value level and 200-week SMA are prices at which to catch this falling knife at $32.13 and $31.42. My annual risky level is $42.50.

Yum! Brands ( YUM) ($66.30 vs. $67.08 Dec. 3): Still has a buy rating and remains below its 200-day SMA. My monthly value level is $63.64 with quarterly risky level at $72.24.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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