What Happened?
A number of stocks traded in opposite directions in the afternoon session after positive inflation data fueled hopes for an interest rate cut by the Federal Reserve. The latest Consumer Price Index (CPI) report showed inflation rose by a modest 0.2% in July and 2.7% over the last year. This cooler-than-expected data prompted a significant market rally, with the S&P 500, Dow, and Nasdaq all climbing as investors grew more optimistic. The prevailing view is that easing inflation gives the central bank room to lower interest rates. Lower rates typically reduce borrowing costs for businesses and make stocks more attractive relative to bonds, contributing to widespread gains across sectors like healthcare.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Healthcare Technology for Patients company Tandem Diabetes (NASDAQ: TNDM) jumped 7.7%. Is now the time to buy Tandem Diabetes? Access our full analysis report here, it’s free.
- Patient Monitoring company iRhythm (NASDAQ: IRTC) jumped 5.9%. Is now the time to buy iRhythm? Access our full analysis report here, it’s free.
- Outpatient & Specialty Care company agilon health (NYSE: AGL) fell 3.2%. Is now the time to buy agilon health? Access our full analysis report here, it’s free.
- Drug Development Inputs & Services company Fortrea (NASDAQ: FTRE) jumped 16.4%. Is now the time to buy Fortrea? Access our full analysis report here, it’s free.
- Genomics & Sequencing company 10x Genomics (NASDAQ: TXG) jumped 5.1%. Is now the time to buy 10x Genomics? Access our full analysis report here, it’s free.
Zooming In On Fortrea (FTRE)
Fortrea’s shares are extremely volatile and have had 58 moves greater than 5% over the last year. But moves this big are rare even for Fortrea and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 6 days ago when the stock dropped 4.4% on the news that the company reported mixed second-quarter financial results, where a massive net loss overshadowed a revenue beat and raised guidance. The contract research organization posted revenues of $710.3 million, which exceeded analysts' expectations. However, investors focused on a staggering GAAP net loss of $374.9 million for the quarter. This loss resulted primarily from a non-cash goodwill impairment charge of $309.1 million. A goodwill impairment is an accounting adjustment made when the value of a company's assets declined. Fortrea attributed this charge to its own falling share price and market-driven interest rate increases. Further concerns arose from a weak book-to-bill ratio of 0.79x, which indicated the company secured less new business than it billed during the period.
Fortrea is down 61% since the beginning of the year, and at $7.27 per share, it is trading 69.6% below its 52-week high of $23.90 from September 2024. Investors who bought $1,000 worth of Fortrea’s shares at the IPO in June 2023 would now be looking at an investment worth $241.53.
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