Whoa! What Just Happened to My Stock?
Hoping beyond hope the EU's finance ministers really, really mean it this time when they say they'll do more to fix their financial houses, the markets rallied higher. Yet just because your stock strapped on a rocket pack and went even higher resist the urge to high-five everyone in the cubicles next to you. 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.
CAPS Rating(out of 5)
|Hill International (NYS: HIL)||****||34.3%|
|MELA Sciences (NAS: MELA)||**||27.9%|
|Wave Systems (NAS: WAVX)||*||22.9%|
With the Dow Jones Industrial Average (INDEX: ^DJI) jumping 153 points on Tuesday, or 1.4%, stocks that went appreciably higher are pretty big deals.
Libyan strongman Moammar Gaddafi (just how do you spell his name?) remains in power, though most tenuously, as rebel forces continue to battle him with an army that's still loyal to its leader.
Such a situation makes collecting outstanding bills there for work performed extremely difficult for construction risk manager Hill International. It has $60 million in receivables outstanding there, and a default on payments could have a material impact on its operations. But the Middle East still represents a sizeable opportunity and was largely responsible for the $2.3 billion in backlog it has as a result of snaring two contracts in Iraq worth $1.5 billion to build housing there.
Still, when Hill inks deals in much more stable environs and for more reliable customers -- as it did with the several smaller multimillion-dollar deals here in the U.S. announced in the past several days -- it is understandable that investors will be more hopeful.
Right now, 96% of the CAPS members rating Hill think it hasn't reached the summit yet. Add the construction risk manager to your watchlist, and then let us know on the Hill International CAPS page whether you think it can manage the risk to its own bottom line.
Finding a way out
There was no company-specific news to account for MELA Sciences' shares driving so much higher yesterday, but it did fuel speculation that more positive news would be coming out soon on its cancer detection device, the MelaFind. Last week it received an approvable letter from the FDA that puts it within striking distance of a commercial launch, except for the many conditions that were also applied to the letter.
I indicated at the time that I thought the conditions were a significant stumbling block to making a profitable go of it in the U.S., but NoWallStreetSpin suggested I was shortsighted, as MELA had developed a nice revenue stream in its card system, which is unique for each patient. MELA itself says there are about 70,000 new cases of melanoma each year, and almost 8,800 related deaths. Even if many patients are referred by doctors to be serviced by PET/CT scanners made by General Electric, there would be a very large revenue pool for MELA to tap.
While I marked MELA on CAPS to underperform the market, I'm in the decided minority there, as 85% of the community weighing in on the device maker believe it will go on to beat Wall Street.
Tell us in the comments section below or on the MELA Sciences CAPS page if you think it can find its way to growth, and then add the device maker to your watchlist to keep track of its progress.
A betting man
Computer security software specialist Wave Systems was another company with no company-driven news causing its shares to rise, though with a large number of shares sold short (10% of its float) and with more than 25 days to cover, there may be something of a squeeze play going on. Shorting Fools like that figure to remain below seven days to prevent just such a run on the stock.
It can't be ignored that Dell (NAS: DELL) remains its largest customer, and dangerously so. The computer maker accounted for 70% of the software security specialist's revenues last quarter, introducing an exceptional level of risk into the equation (though it's down from 82% a year ago). That may play a large role in the decision by CAPS All-Stars to believe the company won't be able to outpace the markets. Nearly three quarters of those expressing an opinion think it will underperform the broad indexes.
Stay on top of Wave Systems' developments by adding it to your watchlist, and share your thoughts on the Wave Systems CAPS page on whether it will generate enough of a squeeze to boost its shares even higher.
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 re-entry or off to infinity and beyond.
At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Dell. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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