Wednesday Losers: Canadian Solar, Westport Innovations and Shoe Carnival

Among the biggest losers in Wednesday’s early trading are Canadian Solar (Nasdaq: CSIQ), Westport Innovations (Nasdaq: WPRT) and Shoe Carnival (Nasdaq: SCVL)

Top Percentage Losers — Wednesday, June 2, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
Canadian Solar
(Nasdaq: CSIQ)
$9.94 -13.9% $33.68 $9.21
Westport Innov.
(Nasdaq: WPRT)
$14.33 -7.8% $20.44 $6.60
Shoe Carnival
(Nasdaq: SCVL)
$23.24 7.3% $29.26 $10.97

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:00AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Canadian Solar Fesses Up

Shares of Canadian Solar (Nasdaq: CSIQ) are off around -20% after the company warned that the U.S. Securities and Exchange Commission (SEC) is investigating its accounting practices. Questions about sales returns are at issue, and management not only postponed a conference call planned for today, but also lowered second-quarter sales forecasts, perhaps in acknowledgement that revenue recognition policies were too aggressive. Notably, management boosted full-year sales guidance, but that outlook lacks credibility at the moment.

Investors have good reason for dumping shares. The fact that a key customer returned solar panels is quite unusual, and highlights the risk that Canadian Solar has possible defect issues. It doesn’t help that management failed to “un-book” those revenues when products were returned.

Action to Take –> The solar sector still holds a great deal of promise, but the near-term is dominated by a never-ending stream of bad news. Other solar stocks may start to rebound later this summer when investors look ahead to brighter days in 2011 and 2012, but Canadian Solar is unlikely to join that rally, especially if the SEC investigation drags on for awhile. There’s no need to bottom-fish these shares.


Westport’s Slow Progress

It’s easy to love a stock like Westport Innovations (Nasdaq: WPRT). The company is a leading player in the natural-gas fueled truck market. Natural gas is cheaper than diesel, is seeing increasingly favorable legislation, and has a relatively clean emissions profile. Shares of Westport had run from $6 to $20 during the past year on hopes that the country would soon start to embrace natural gas as a transportation fuel in a big way.

#-ad_banner-#But Westport keeps dashing hopes by delivering quarterly results that are shy of forecasts. A tepid fiscal fourth-quarter earnings report pushed shares down nearly -8% in Wednesday trading, and they have now fallen nearly -30% since mid-May.

The challenge for investors is to peg a date when the company finally turns a profit. Right now, it looks as if Westport will lose around $1 a share for the fourth straight year (on a non-GAAP basis). Yet a clear positive looms on the horizon. The NATGAS act, which was proposed last month, is expected to offer massive subsidies for truck manufacturers that sell natural gas-fueled vehicles. Right now, the legislation is stalled in Congress, but is expected to eventually pass. Until it does, though, demand for Westport’s engines may actually slow as potential buyers wait to see how Washington will proceed.

Action to Take –> Natural gas is a logical choice for transportation fuel. But it’s unclear if Westport Innovations will ever actually make a profit off of the business. As the market opportunity grows, the company is bound to see more competition. So shares may not be attractive on a fundamental basis — especially since demand may slow in the near-term. But this stock always does well when investors are talking about natural gas, and shares will get a very nice lift when legislation is finally passed. So feel free to build a small speculative position on this “story stock,” but be prepared to take quick profits if any positive announcements push shares sharply up. If history is any guide, that rebound probably won’t last.


Shoe Carnival and Collective Brands

You can get a clear gauge of the broader investor mood by seeing how a stock trades after a mixed earnings report. If investors are in a favorable mood, then they tend to look at the positives. But a wary investor will look for any excuse to sell. Right now, it’s the latter mood that dominates. Retailers Shoe Carnival (Nasdaq: SCVL) and Collective Brands (NYSE: PSS) are each off more than -7% in Wednesday trading, even as they delivered a mix of good and bad news.

Shoe Carnival delivered solid first-quarter results, and said that second-quarter profits will be in a range of $0.23 to $0.27 a share. Analysts are forecasting $0.27 a share. Investors see that as a real disappointment, but should know that management has a way of setting a low bar. In each of the last four quarters, guidance has been somewhat cautious, but the retailer has gone on to blow past profit forecasts — by at least 32% every time.

Action to Take –> Investors are over-reacting to the cautious outlook in a quarter that is seasonally unimportant anyway. Shoe Carnival shares are now off more than -20% in the past few weeks, creating a nice entry point. Shares, at a recent $23, are likely to work back toward the $30 level later this summer as investors start to focus on the still-bright prospects for next year.