Some stocks face big headwinds

Even without any news…

Look for instance at Fuel Systems Solutions (FSYS). This is a company that fits cars with duel fuel systems in order for them to run on natural gas, as well as gasoline. You might want to read the more fundamental piece we did on this company here (or the updates).

Less than a month ago, this was a $50+ stock. Suddenly, it, well, it’s difficult to use any other word, collapsed to under $30 today (it’s recovering a bit from a low at $28.28 today).

What’s going on?

Well, nothing really. There is NO news out. Of course, it’s always possible that this fall is preceding some kind of bad news, we would have no way of knowing that. But a catastrophe warranting such a share price collapse doesn’t seem very likely.

We think it has more to do with the lower oil price (cars on natural gas are supposed to be an alternative and will therefore be more attractive with higher oil prices). However, in their main markets, high taxes on oil mutes the consumption price at the pump to such an extent that this can hardly be a factor.

So it’s just perception, and the usual overreaction we see on financial markets. We’ve seen that in the Chinese smallcaps we follow. These are mostly debt free, high growers and often ridiculously cheap already, but they got slaughtered nevertheless as a result of some mumblings out of China that they might take their foot off the accelerator in order to prevent bubbles to form. It’s not that the markets for these companies are suddenly under threat, or anything like it.

But financial markets overreact. And you can take advantage of that. We think FSYS shares are a solid buy for anything under $30. They have a 2010 p/e of 11, hardly expensive for such a solid growth company, and we think the market opportunity is good for this company. Natural gas is cheaper and cleaner than gasoline. Simple as that.

It is actually quite promising that they have bounced significantly from the low today, although it’s perhaps a little early to give any definite verdict. An RSI of 21 suggest very heavily oversold territory though..

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