Whoa! What Just Happened to My Stock?
The Dow has been stuck near the 13,000 level for a while now. But even if your stock strapped on a rocket pack and went 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 in their stock 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 two stocks that just hit the afterburners and see whether they're truly headed into orbit.
CAPS Rating (out of 5)
|Shutterfly (NAS: SFLY)||*||16.5%|
|Sears Holdings (NAS: SHLD)||*||9.7%|
Source: Motley Fool CAPS.
The Dow dropped three points on Friday, so stocks that soared are pretty big deals.
The perfect picture
The movement in Shutterfly's shares Friday was not so much a statement about the online picture service as it was a reaction to the demise of Eastman Kodak.
As Kodak seeks to reorganize into an entity that can make a go of itself again, Shutterfly is seeking to buy its Kodak Gallery online photo service for $23.8 million. The deal would allow Kodak to focus instead on its enterprise business and consumer printing operations.
Meanwhile, Shutterfly competes against Hewlett-Packard's (NYS: HPQ) Snapfish, American Greetings' (NYS: AM) Webshots, and Kodak's Gallery, and the acquisition should help it pull away as the market leader. After buying Tiny Prints last year, Shutterfly revenues grew to $473 million, a 54% increase over 2010, with the number of transacting customers growing almost 20% to 4.9 million. It has also felt margin pressure from its competitors, who the company says have been discounting their services at "unprecedented levels" -- including, presumably, the ailing Kodak. The purchase, therefore, should help shore up margins going forward as it adds Kodak's 75 million customer accounts.
CAPS member acmueller1 isn't so sure that will help, as its spotty record of profitability is reminiscent of so many companies from the dot-bomb era.
Do people not remember the lessons of 2000? You don't invest in a stock just because it has a business plan and a ".com". With the exception of a few stocks that had a plan to change the way we do business (amazon, google, ebay), .com stocks are nothing but a way to milk investors of their money.
Add the online photo service to the Fool's free portfolio tracker to see if it can remain profitable where so many other such services fail.
It's deja vu all over again
The best thing that can be said about Sears Holdings' sale of some stores in Canada is that long-suffering investors are finally able to say they were right: The value in the old line retailer was in its real estate holdings.
There's no question the retailer's footprint is large and valuable, but the $270 million it will realize from the sale of 11 stores amounts to a fire sale, and we're once again treated to management talking about turning the operation around. We've been down this road before and haven't seen any lasting results from it. Betting on hope and change isn't a sound strategy.
Needless to say, I fall into the bear camp on Sears -- and have been there for some time. While the stock has more than doubled since the start of the year, it's not a hopeful sign that the best you can hope for is to realize value by burning the furniture. Caught between traditional retailers like Macy's and discounters like Wal-Mart, Sears is left with little choice but to sell off its stores and hope it can maintain its share of the appliance market. That that, too, is down a long way from its highs shows just how far Sears has fallen and why it might not be the surest spot to gain your footing.
Since they dont specialize, they compete with giants like WMT ... not to mention other mall/clothing retailers, as well as the more sector specific outlets. Their business model is tantamount to a more expensive WMT with less selection. Sears.... You fail. Short term and long.
Tell us on the Sears Holdings CAPS page which camp you fall into, then add it to your own watchlist to see if it succeeds on its turnaround plan or fails miserably, as I suspect it will.
Going into orbit
These two companies may have divergent futures, despite their short-term bounce, so check out the one stock the Motley Fool thinks will break all the rules to win. Hurry, though, because a free look at the new report "Discover the Next Rule-Breaking Multibagger" is available for a limited time only.
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 Wal-Mart.Motley Fool newsletter serviceshave recommended buying shares of and creating a diagonal call position on Wal-Mart. 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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