Whoa! What Just Happened to My Stock?

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The markets reversed course again, but resist the urge to high-five everyone in the cubicles next to you just because your stock also strapped on a rocket pack. Smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating(out of 5)

Thursday's Change

Liquidity Services (NAS: LQDT) ****30.4%
Ciena (NAS: CIEN) **20.2%
Shuffle Master (NAS: SHFL) **13.0%

With the Dow Jones Industrial Average tumbling 120 points yesterday, or 1%, as the employment picture remains exceptionally weak, stocks that went appreciably higher are pretty big deals.

A different social network
Usually it's an agreement to get bought out that results in a huge jump in a stock's value, but for Liquidity Services it was announcing that it was making an acquisition that sent its stock soaring. With the purchase expected to really boost Liquidity's business, no wonder investors rallied to the shares.

Think of Liquidity Services offerings as an eBay (NAS: EBAY) for corporations and government agencies, allowing them to auction off surplus assets in a secure marketplace. Its purchase of Jacobs Trading's consumer goods remarketing business strengthens an already existing relationship that Liquidity has with the world's biggest retailer, Wal-Mart. For just $140 million, the deal dovetails nicely with its stated objective of building a $1 billion business in an industry estimated to be $60 billion in size.

The market thought so, too, sending Liquidity Services' shares 30% higher, underscoring the support the CAPS community has bestowed on it with 98% of the All-Star members rating it to outperform the broad market averages. Tell us in the comments section below or on the Liquidity Services CAPS page whether you'd bid on it at these prices.

Higher and higher
Optical networking equipment makers are beginning to see a light at the end of the tunnel, and it doesn't look to be an oncoming train. Having been crushed earlier in the year with fears that spending cutbacks would eat into growth projections, those who were proclaiming the death of the industry just a few months back were a bit premature if not slightly exaggerating industry conditions.

Infinera led the way forward with a positive earnings report that saw booking momentum return, while Finisar reported better-than-expected profits yesterday. Joining in on the party is Ciena, which turned profitable despite missing analyst revenue projections, though it came in at the low end of its own guidance.

Admittedly, it's not all puppy dogs and smiling babies. Juniper Networks and Riverbed Technology (NAS: RVBD) both disappointed, and Ciena's own guidance for the third quarter was also below expectations.

Highly rated CAPS All-Star naughtyguy is suspicious of the heavy debt load Ciena carries, but mwlove believes the assets purchase from Nortel, while weighing down results this year, will lead to higher growth in the future:

Ciena has the best high-speed optical technology. The purchase of Nortel's optical business caused problems for 2011, but 2012 will be a banner year. The stock is now 40% down from its high point, so it's a great bargain.

Add Ciena to your watchlist then head over to the Ciena CAPS page and tell us if it can see its way to even greater profits still.

A betting man
Better-than-expected earnings were also behind the rise at gaming technology specialist Shuffle Master. While the Chinese gambling paradise of Macau continues to bolster the bottom lines of casinos like Wynn Resorts (NAS: WYNN) as gambling revenues surged 57% in August, it also pushed card shuffler and chip sorter lease placements at Shuffle Master higher. Segment revenue grew 18% in the quarter, though new lease placements for live games in the U.S. also grew in its proprietary table game segment.

It was a bit of a bust on the electronic game side of things, as Pennsylvania and Delaware transitioned to live gaming models. While Shuffle Master's electronic games were deployed elsewhere, they aren't making the same kind of money they were in those states. As a result, its ETS segment saw revenues drop 42% and margins decrease to 47%. Electronic table systems went from accounting for 22% of revenues last year to less than 12% this year.

With 84% of the nearly 500 CAPS members who have rated Shuffle Master to outperform the market, it seems they think it will continue performing above expectations. However, the low two-star rating they've assigned it suggests you'll find better odds of making a profit elsewhere.

Let us know on the Shuffle Master CAPS page if additional growth is in the cards for this gaming specialist.

Going into orbit
That's why it pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock's headed for reentry, or off to infinity and beyond.

At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Infinera and Wal-Mart. Motley Fool newsletter services have recommended buying shares of Riverbed Technology, Infinera, Wal-Mart, Liquidity Services, and eBay; creating a diagonal call position in Wal-Mart; and writing puts in Riverbed Technology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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