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Five Big Bears Ready To Roar For June 3

By Ayton MacEachern

Tickers in this Article: SIGM, JCG, UBS, TTM, JASO

A serious decline in the price of a stock could signal that something is fundamentally wrong with the underlying company. This is what needs to be explored when looking at a company that has seen a large move to the downside. This is because that seemingly large share price declines, can often just be a small price correction that could be due to many factors, such as overall movement of the industry, sector, or market as a whole. For a long-term investor looking to find an entry point, these short-term price pull backs are often a blessing in disguise. (For further reading, check out Surviving Bear Country.)

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On that note, here are five stocks that have recently experienced a large one-week decline in share price, but still have bullish sentiment in the Stock Picking Community. By exploring them further, and by trying to determine what caused their drastic declines, we can be in a better position to predict whether they will continue.

The Bear Cave

Company	Ticker	One-Week Loss*	Community Sentiment
Sigma Designs	Nasdaq:SIGM	22.3%	100% Bullish
J. Crew Group	NYSE:JCG	20.4%	100% Bullish
UBS AG	NYSE:UBS	14.5%	80% Bullish
Tata Motors	NYSE:TTM	12.3%	97% Bullish
JA Solar Holdings	Nasdaq:JASO	11.3%	75% Bullish
*Data as of market close June 2, 2008

Sigma's Pain Seen In High Definition
Shares of high definition media semi-conductor and software provider Sigma Designs fell at market open last Friday to open the day at $18 per share; the stock had closed Thursday at $21.91. This fall, came on news late Thursday night that due to an external inventory correction, according to CEO Thinh Tran, quarterly profits had declined 13% to $4.7 million, or just 16 cents per share. After adjustments for various charges, non-GAAP earnings for the quarter were reported at 40 cents per share, 2 cents lower than analysts were expecting. (To see how analyst expectations can effect share prices, check out Analyst Forecasts Spell Disaster For Some Stocks.)

Tran made comments to shareholders that the company is "disappointed to begin this fiscal year on a negative note, posting our first down quarter after nine quarters of strong sequential growth." He continued by saying that because this was primarily due to the external inventory correction, which Sigma had forecast for, the outlook for the future still looks good.

When a company releases results that are below analyst predictions and share prices fall, it is all too often that we get management standing up, and making excuses and trying to make light of the situation. This is where Tran is different. Although, the blame is put on this inventory correction, it was forecast previously. And what I really like about this situation, is the rest of the management's commentary on the earnings report. Instead of just crying about the numbers, he talks of the business instead.

Following the quick explanation of the fall in earnings, Tran announced that Sigma has begun sampling a new media processor designed for the next generation of Internet Protocol Television (IPTV), which provides a 50% improvement in performance at a lower cost. Other recent business developments include a joint collaboration with Microsoft to enable the Microsoft Mediaroom IPTV platform to operate on the new processors, and the completion of a 3.8 million share buyback program.

Cash Is Still King
I had almost forgotten about the small decrease in earnings because of the great outlook for the business's future. So, I decided to double check the financials to make sure that Sigma is in a position to efficiently move forward with plans of innovation, and share repurchases. With almost $100 million in cash and cash equivalents, and over $200 million in total current assets, this company is sitting pretty when you look at its debts. As of May 3, Sigma had only $31 million in short term debts, and less than $2 million in long-term liabilities. (For further reading, see our tutorial on Advanced Financial Statement Analysis.)

From a turnaround perspective, I like Sigma's prospects. Up until now, it has been growing at an exponential rate, and current and upcoming business developments seem to pointing Sigma in the same direction going forward. Even if it did run into a bit more trouble, its amazing cash position compared to its outstanding debt leaves me more than comfortable that it could weather the storm. At prices near the low point of its 52 week range, this stock is a bargain. (To learn how to find the hidden diamonds in the rough, check out Finding Profit In Troubled Stocks.)

Add Your Two Cents
What do you think will happen with Sigma Designs going forward? Will its new flagship IPTV processor, and good financial position be enough to turn the stock around? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

By Ayton MacEachern

Ayton MacEachern is the Senior Financial Editor at Investopedia.com. After receiving his bachelor's degree in financial services from Mount Royal College in Calgary, Alberta, MacEachern began his career at an international securities trading firm. Before joining Investopedia in 2008, MacEachern worked in a variety of roles in the financial industry, including workers' compensation insurance underwriting, financial planning, and equity, currency and options trading. MacEachern is also Co-Founder of theskipper.ca, a source for online outdoor education.

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