Saturday, September 26, 2015
Volkswagen's $VLKAY 35% Stock Drop Overdone?
The backlash caused Volkswagen's stock price to tumble sharply and its CEO, Martin Winterkorn, announced his resignation.
A look at the stock price chart will show just how material this piece of news was to the wellbeing of the stock. However, as with all major drops in such a short time span, we need to understand if it is warranted, or if investors are simply looking to cash out.
A good example of a time when significant news broke out, investors fled, and then the stock recuperated thereafter, was the Deepwater Horizon oil spill, involving an O&G giant, BP. Following the explosion and sinking of the Deepwater Horizon oil rig, a sea-floor oil gusher flowed for 87 days, until it was capped on July 15, 2010. BP's stock was slashed in half, but has bounced back quite substantially several months post-incident.
BP BP 0.9% – July 2009 – July 2011
Just goes to show that stock markets are never fully efficient, and it takes time for investors to figure out the real material impact of a major news event. In the case of Volkswagen, we may see a similar bounce. Volkswagen's woes seem to weigh on other auto-related stocks, such as the ones on our list, but they too seem poised to recover.