Whoa! What Just Happened to My Stock?

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Positive economic news outweighed any financial data that might presage greater risk yesterday. But if 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 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)

Vaalco Energy (NYS: EGY) ****16%
Xinyuan Real Estate (NYS: XIN) ***10%

Source: Motley Fool CAPS.

The Dow surged 218 points, or 1.7%, as U.S. retail sales rose strongly in February. So stocks that went appreciably higher are pretty big deals.

Feeling re-energized
Profits might have slid from the year-ago period for Vaalco Energy, but that was a result of paying substantially higher income taxes due to churning out greater volumes of oil. Revenues soared year over year, from $38.2 million to $67.8 million, handily beating analyst expectations of just $44.5 million.

Vaalco has been plying the waters off Africa's west coast for some time and was recently granted an extension by Angola to find a partner (it believes it may have found one) and further explore its options in the Kwanza basin. Both Statoil (NYS: STO) and Eni took ownership of several blocks in the same region where Vaalco owns 1.4 million acres. Just as Statoil hopes that the find will help it boost its worldwide production figures, so, too, does Vaalco believe that having other major companies nearby validates its move into the area. 

Vaalco expects 2012 to be the year when its plans come to fruition. Earlier exploration by previous operators confirmed the presence of positive oil formations, but because oil was cheap, they weren't developed. Now, with oil well over $100 a barrel, is an opportune time to exploit the area.

With 1,565 CAPS members weighing in on the oil company, 97% believe it will find success and beat the market averages. Add Vaalco to the Fool's free portfolio tracker and drill down deeper for what investors are saying on the Vaalco Energy CAPS page.

Building a future
With no company-specific news to account for the jump in Xinyuan Real Estate's shares, it likely should be attributed to the buoyancy associated with the hookup of online video sites Youku (NAS: YOKU) and TudouHoldings. Their merger announcement helped fuel a rise in a number of Chinese names, but such gains should be short-lived since they'll all need to deal with a slowing economy in China.

While some analysts contend projected growth of 7.5% in the Orient would be a welcome guns-a-blazin' growth rate here, it represents a significant slowdown in China. Such a slowdown could represent a big threat to the postmerger Youku going forward. And with financial turmoil in Europe limiting demand for Chinese goods, it will trickle down to other areas of the economy soon.

Real estate developer Xinyuan benefited from China's exponential expansion as the middle class blossomed. A slowing economy could generate an equally sharp contraction. Yet it may help ameliorate the equally expansive rise in housing prices, which led the country to impose controls, though the government admits they're still at unreasonable levels. It may just be enough to fuel future growth at Xinyuan.

CAPS member whackotrader admits a slowdown is possible but feels Xinyuan's management team can overcome such obstacles:

Even if China Real estate slows this is a great buy, strong balance sheet, good management. Has paid and intends to keep paying a dividend, Big 4 Auditor, several years of clean financials. Years from now people will be scratching their heads in shock that it was ever this low.

Tell us on the Xinyuan Real Estate CAPS page if China is still a place to invest, then add the stock to your own watchlist to see how quickly it can pay off.

Going into orbit
These two companies may have divergent futures despite their short-term bounce, so check out for free the one stock The Motley Fool thinks will break all the rules to win. Hurry though, because the 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.Motley Fool newsletter serviceshave recommended buying shares of Statoil. 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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