The old market cliché of "sell in May and go away" should perhaps be amended to April, as the stock market had its worst May performance since 1940, with the Dow Jones Industrial Average down 8% for the month.
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Many stocks were pounded much worse during the month due to company specific issues, with disappointing earnings or outlook as the main cause.
Not Meeting Estimates
Dean Foods (NYSE:DF) fell 33% in May 2010, after the company reported first-quarter earnings that fell below analyst estimates, and suspended guidance for 2010. The company cited "substantial margin pressure in our milk business" as retailers squeezed margins.
Moody's (NYSE:MCO) also downgraded the speculative grade liquidity of Dean Food's to SGL-3 from SGL-2, and expressed concern on higher leverage relative to covenants that the company must follow.
Priceline.com (Nasdaq:PCLN) has been on an upward momentum streak for so long that it was inevitable that the company would eventually disappoint investors. Priceline.com reported first-quarter earnings that beat analyst estimates, but then lowered guidance on EBITDA for the second fiscal quarter by $10 million because of cancellations due to the Icelandic volcano. Investors didn't care if the weakened outlook was caused by an act of God or man, and sold the stock down 30% for the month.
Earnings were also the culprit at Sears Holding (Nasdaq:SHLD), which ended May down by 29%. The company reported a decline in gross margin dollars in the first fiscal quarter (ended May 1, 2010) due to increased promotional markdowns in the home appliance category.
Baker Hughes (NYSE:BHI) was off by 25% in May. The company closed on its merger with BJ Services at the end of April, and reported earnings in early May that beat analyst estimates by five cents per share. Investors, however, seemed to be put off by cautious comments by management during the conference call, and macro issues facing all stocks in the energy sector.
Janus Capital Group (NYSE:JNS) ended the month down 25%. The company reported earnings in late April 2010, and there doesn't seem to be any obvious reason for the poor performance during the month of May. Investors turned bearish in finance in general during May, and Goldman Sachs (NYSE:GS) downgraded many stocks in the sector, with Janus Capital Group moving to a sell from neutral. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
The market spared few stocks during May 2010, but punished some more than others. Investors who didn't own these stocks should be thankful, and those that did must decide whether to hold on, or flee.
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