At the end of every quarter, I like to look back over recent market laggards. Most of the stocks that took a recent deep hit are likely to stay depressed, but some are the victim of investor over-reaction and poised for a rebound.

With that in mind, let’s look at the five worst-performing small caps during the past month. All of these stocks are in the Russell 2000 Index of small caps, and each sport a market value of at least $300 million.



Savient Pharmaceuticals (Nasdaq: SVNT)
This biotech soared +83% in the third quarter. Roughly a third of that gain came on just one day in September when it received FDA approval for Krystexxa, a gout drug which targets patients for which other gout treatments have proven ineffective. Some analysts think Krystexxa represents $200-250 million in annual sales, while others peg it as a $750 million annual revenue opportunity. Global Hunter Securities figures the market niche is roughly $400 million. Savient announced back in May that it would put itself up for sale, and the FDA nod in September made it that much more attractive.

But earlier this week the company announced that a few potential buyers had decided to pass on an acquisition, and the company took itself off the block. Analysts believe the company’s stock had simply become too expensive, sporting a market value of $1.4 billion. That figure now stands at $800 million. All of the sudden, this stock is now more reasonably priced for a deal. So those potential bidders could well return to the table with an offer of around $18 — roughly +50% above the current price, but -20% lower than where the stock traded just last week. With FDA approval already in hand, and the gout treatment market increasing in size, shares now look quite attractive — with or without a deal.

But a word of caution: If a buyer doesn’t emerge in the next six months, Savient may need to raise more cash to launch Krystexxa commercially. And that’s never a good thing for shares.

Coldwater Creek (Nasdaq: CWTR)
Retailers generally report that same store sales rose or fell by a few percentage points compared to a year earlier. But when this retailer of women’s apparel and jewelry announced that same stores fell a whopping -20% in its fiscal third quarter ended October, investors ditched the stock, sending shares down more than -30% on October 19.

#-ad_banner-#You can’t pin all the sales weakness on the company. Women’s apparel sales are apparently slumping at other retailers as well. Yet Coldwater Creek’s shortfall is likely to yield collateral damage. The retailer needs to sharply discount now-bloated inventories while figuring out a way to regain its merchandising touch. And the timing is lousy, heading into the all-important holiday shopping season. This stock is now quite cheap, trading at less than 0.3 times trailing sales, but is unlikely to rebound anytime soon.

Infinera (Nasdaq: INFN)
This maker of optical networking chips reported very robust third-quarter results in the middle of October, but management said fourth quarter results would not be nearly as impressive.

Suddenly, a stock that had risen from $8 to $12 over the summer was once again an $8 stock. The reason for the downbeat view: major customers have finished recent network upgrades and wouldn’t need many more of Infinera’s chips in the near-term. Of further concern, the company had been signing up an average of four new major customers from the third quarter of 2008 to the first quarter of 2010, according to Goldman Sachs. Yet in the past two quarters, that figure has slumped to one and two, respectively. And that means sales will likely be pressured for at least a few more quarters until the company can secure more new customer wins.

Citigroup’s Kevin Dennean remains as a lonely bull on the stock, sticking by his “Buy” rating. His recently lowered target price of $13.50 represents more than +50% upside from current levels. But even Dennean concedes that there are few positive catalysts in the near-term. This is a stock to re-visit this winter when fourth quarter results are announced and 2011 guidance is issued.

Earlier this week’s Infinera’s rival, Oclaro (Nasdaq: OCLR) issued similarly tepid fourth quarter guidance, and shares also look like dead money in the near-term.

Dex One (Nasdaq: DEXO)
A large debt load continues to scare off investors at this publisher. I noted back in August that caution was warranted, and that notion still applies. [Read: “4 Rebound Stocks Worth a Closer Look”] But it’s still worth listening to the company’s November 9 conference call. If cash flow is holding up better than some investors fear, then this stock would start to look like a deep value play.

Action to Take –> Of the stocks profiled here, Savient Pharma looks to be the most appealing, regardless of whether or not a suitor re-emerges.

Dex One’s recent fall indicates that recent quarterly trends are weak. But if management can point to robust cash flow on the upcoming conference call, then shares, which have fallen nearly -80% this year, could see new life. But before jumping in, listen for management commentary about any near-term debt obligations.