Whoa! What Just Happened to My Stock?

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The markets cobbled together another up day yesterday as investors took in Italy's plan for restructuring, but 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)

Green Mountain Coffee Roasters (NAS: GMCR) *13.0%
Star Scientific (NAS: CIGX) *10.8%
Chimera Investment (NYS: CIM) ****10.6%

With the markets managing to stay in positive territory yesterday, rising just 17 points, stocks that went appreciably higher are pretty big deals.

Shining a light on growth
Building on yesterday's strong gain, coffee maker Green Mountain Coffee Roasters is bucking the trend again today and trading higher by about 5% so far. Shares have bounced off the worst of their lows, when they were cut in half as concerns about the company's financial situation gripped the market. Sales fell well short of analyst expectations, inventories soared, and lingering doubts about it engaging in channel stuffing didn't evaporate.

My Foolish colleague Rick Munarriz says he'll be buying shares of Green Mountain by week's end because the Keurig machine remains popular, the patent expiration battle is overblown, and the stock is cheap. I think what he's doing amounts to balancing a steaming cup of coffee in his lap.

The K-cup is popular because it's patent protected; that expires next year. Green Mountain might have a new patent-protected system waiting in the wings, but why would consumers flock to it when cheaper alternatives will finally be available? And its marketing deals with Dunkin' Brands (NAS: DNKN) and Starbucks (NAS: SBUX) won't be worth much when they can tap a third-party vendor to make K-cups for less. At 36 times earnings and nearly three times sales, I find the stock expensive when considering these pressures bearing down on the coffee maker.

I've marked Green Mountain on CAPS to lose out to the market. But add it to your watchlist and let us know on the Green Mountain Coffee Roasters CAPS page why you think it may percolate to the top once again.

A source of inspiration
Other than some generally positive press appearing about Star Scientific, there was nothing to account for yesterday's big move by the maker of safer cigarette tobacco. Reynolds American was up more than 2% yesterday, continuing its strong move off its 52-week lows and now trading some 36% higher from there.

Star Scientific filed its quarterly results last week and while sales nearly doubled, expenses almost quadrupled, but much of that can be attributed to the introduction of its new dietary supplement Anatabloc, which is an anti-inflammatory. Signs are encouraging that it could be a big seller; it was only on the market for a month during the quarter, but sales exceeded that of its low-carcinogen cigarette CigRx and its smokeless tobacco products combined.

Highly rated CAPS All-Star MegaShort would perhaps not be surprised by Anatabloc's beating out CigRx, as this CAPS member is generally dismissive of its potential. Tell us on the Star Scientific CAPS page or in the comments section below why you think this company won't go up in smoke. Then go and add it to your watchlist to see how it plays out.

Under the weather
Mortgage REIT Chimera Investment gave its investors a bit of a scare last week when it announced a delay in its quarterly filings. The stock sold off about 10% over two days, but it's filing the other day provided more clarity that any adjustments wouldn't be material.

There's been some concern lately that the Fed's Operation Twist may kill the golden mortgage REIT goose. Like American Capital Agency (NAS: AGNC)  and Annaly Capital  (NYS: NLY) , Chimera harvests gold eggs produced by the Fed's low-interest rate policies that allow them to borrow money for next to nothing and profit from the interest rate spreads on the mortgage-backed securities they invest in. As a result they're able to offer eye-popping dividend yields that offer an alluring, yet risky, attraction to investors.

The risk is that Operation Twist will encourage greater prepayment of mortgages, something already being seen, meaning the REITs will have to replace them with paper that has terms not as advantageous as those previously held.

CAPS member thecashmen finds Chimera to be too risky, but ballengerm says the Fed's low-rate policies will continue to benefit the REIT, at least for the next few years: "Including dividends, this stock will outperform until 2013 when the Fed expects to raise interest rates. Cheap now too."

Add Chimera to the Fool's free portfolio tracker to see if this REIT continues to have the right stuff.

Going into orbit
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 contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Chimera Investment, Annaly Capital Management, and Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain Coffee Roasters and Starbucks.Motley Fool newsletter serviceshave recommended creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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