Five Big Bears Ready To Roar On May 5

If the old investing axiom "buy low, and sell high" is true, then investors should be jumping with joy when the market shows them companies that have declined more than 10% in a week! Seemingly large share price declines are often really just small price corrections that occur as part of an overall movement in the market as a whole. For a long-term investor looking to find an entry point in an individual stock, these short-term price pullbacks are often a blessing in disguise.

A company's fundamentals need to be explored when it has seen some serious price declines over a short period of time because a serious price decline can also signal something more sinister than a lowball entry point; it could just as easily be the start of a long downtrend in the stock's price, or the beginning of the end of the company's success as a business. In other words, any time one of your stocks takes a plunge to lower price levels, you should probably ask yourself whether there is something fundamentally wrong with the underlying company. (For further reading, be sure to see our article Surviving Bear Country.) Let's take a look at five stocks that have experienced relatively large declines over the past week and dig a little deeper to find one with bullish potential.

The Bear's Den
This list of big bears is a diverse one, with companies in the agricultural, solar, financial and consumer discretionary sectors.

Anyone who has been following the markets over the past year can understand why we keep seeing losses in the financial and consumer discretionary sectors. Financials continue to be driven down as the credit crisis continues to drag on. This has caused a lack of available credit for consumers, which has clamped down on consumer spending on "toys", also known as consumer discretionaries. (For more information on investing during economic downturns, read Recession-Proof Your Portfolio.).

But there is at least one element of these big bears that I think has bullish potential: potash. Just a few weeks ago, in Big Movers You Need To Know For April 18, we spoke of Agrium (NYSE:AGU), which posted massive gains of more than 20% on news that China agreed to increase the amount it paid for a large contract of Canadian fertilizer. Other fertilizer producers saw similar gains, as the demand for Canadian fertilizer increased.

So why did Intrepid Potash's shares fall from a close of $51.94 on April 25, to $44.76 on May 2, just one week later? Well, the answer has something to do with where Intrepid's share price had been prior to this decline. Intrepid is a newly listed company; its shares began trading on April 22, 2008. Born of Intrepid Mining LLC, the largest producer of potash in the United States, hopes were high for Intrepid, and its IPO was priced $6 above the top of the forecasted range of $24 to $26 per share. Even after the higher initial pricing, share prices shot up about 50%, and Intrepid closed its first day of trading at $49.09. With a growing global population and fears of food shortages and higher prices, the world seems to have begun a love affair with potash. Could there have been a better time for this IPO?

Can Intrepid's Fertilizer Help It Grow?
So why the recent price decline? Shares of North American fertilizer producers have seen amazing gains over the past year. Companies such as Intrepid and Agrium, which are the largest of their kind in the U.S. and Canada respectively, had seen some of the largest of those gains. Fundamentally, there should be no reason that Intrepid could not continue to grow its business, as there appears to be no immediate end to fertilizer demand.

If we head over to the Stock Picking Community, it seems that our members agree. If we take a look at some of their picks, it is clear that they believe Intrepid to be a good pick to take advantage of rising food prices and demand. Supaabay, tells us that "global crop prices and demand are rising fast [leading] to high demand on fertilizers. Intrepid Potash has its own mines in the U.S. and it's the largest producer of muriate [and] potash in U.S." CarrieP seems to agree, telling us that "as food prices soar, so do the fertilizer needs of farmers." CarrieP also mentions that "its location in the Sun Belt of the U.S. should position the company for big sales to farmers who are still producing corn for ethanol or wheat to cash in on the high wheat prices."

It seems that Intrepid's price declines might just be a pullback after some astronomical gains since its IPO. If you look at its closing price last Friday, even after the declines, it is over double the low end of the expected range of the IPO. If you are a fan of the potash sector, Intrepid may be the next big opportunity out there. That said, it is important to consider the risks of IPO investing. Intrepid is still a new listing, and there isn't much information history out there on the company yet. (Thinking of investing in IPOs? Be sure to read The Murky Waters Of The IPO Market first.)

Add Your Two Cents
What do you think will happen with Intrepid going forward? Will Intrepid be the next hot investment in the fertilizer industry? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.