Resist the urge to high-five everyone in the cubicles next to you. Your stock may have just strapped on a rocket pack and taken off for the moon, but 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)
Web.com Group (NAS: WWWW)
Air Transport Services (NAS: ATSG)
Emdeon (NYS: EM)
NR = not rated.
Markets got crushed yesterday, falling more than 500 points, or 4.6%. Investors feared that the double-dip recession is finally upon us, and their panic made this an official "correction," where the market averages have fallen 10% or more. In that grim context, stocks that surged significantly higher look downright remarkable.
Higher and higher
Online services provider Web.com has proven it can make smart acquisitions. Its decision to take on an even larger company helped propel the stock higher.
The web design and marketing company for local businesses acquired Register.com last year, leading to record second-quarter results that came in at the high end of guidance. Greater scale from a larger customer base helped push adjusted revenues to $46.2 million, ahead of company forecasts of $45 million to $46 million. Adjusted earnings of $8.1 million, or $0.26 a share, also exceeded Web.com's own forecasts by $0.02 a share.
Now the company's going after even larger fish, announcing its intention to buy privately held Network Solutions for $560 million. When completed, the deal will give Web.com some 3 million paying subscribers and 9 million domains.
There's a $19 billion market opportunity associated with delivering online marketing solutions to small businesses that Web.com wants to tap, giving it better standing among peers like GoDaddy, VistaPrint (NAS: VPRT) , TeleTech (NAS: TTEC) , and Sykes Enterprises.
With 90% of the CAPS members rating Web.com to outperform the broad market averages, bucking the trend of the day as it did yesterday could become more commonplace in the future. Head to the web and add your thoughts to the Web.com CAPS page.
Coming up short
Turmoil in financial and real estate markets, and the resulting heightened uncertainty, that hurt UPS's (NYS: UPS) global trade. But those same factors didn't faze Air Transport Services Group, which reported much better financial numbers. And because it restructured its agreements with package delivery specialist DHL earlier this year, even the decision by one of its customers, DB Schenker, to reduce the number of freighters it used from ATSG from 16 to seven doesn't hurt as badly as it otherwise would. DB Schenker is switching many of those flights to DHL, so ATSG will likely service the routes anyway.
Just a year ago, CAPS member mac1579 predicted the DHL agreement would pay off in spades for the transport player: "New contract with DHL will support ATSG for the near future. Company is run tight with no frills."
Air Transport Services also restructured its credit agreements earlier this year, which observers believed would hurt short-term earnings but improve the company's long-term financial position. That prediction's since come true, underscoring the faith placed in ATSG by the 87% of CAPS members rating the stock to beat the Street.
Add Air Transport Services to your watchlist, then head over to the Air Transport Services Group CAPS page and deliver your opinion on whether it can package further growth opportunities.
Ensuring a positive outcome
Health-care billing specialist Emdeon has proven adept at connecting payers, providers, and patients in a cycle of revenue management, providing eligibility and benefits verification, payment distribution and denial management, and collections. Private equity firm Blackstone Group (NYS: BX) apparently liked what it saw, because it agreed to take the company private in a $3 billion deal that will pay shareholders $19 a stub.
The deal apparently had been leaked earlier; Emdeon's shares soared the day before, when the New York Postpublished rumors of the impending sale.
Critics charge that analysts have pegged Emdeon's value at around $21 a share, which means that management is shortchanging current stock owners by agreeing to Blackstone's lesser bid without first shopping the company around. But is $21 even a valid valuation?
Two current private equity investors in Emdeon are General Atlantic and Hellman & Friedman, which together own approximately 70% of the company's outstanding shares. They're voting their shares in favor of the buyout. But while General Atlantic will no longer invest in the company, Hellman will remain a significant minority interest. It's easy to see why they'd want the deal to go through -- how about you?
The CAPS community had been exceptionally bullish on Emdeon's future. All of the All-Stars who weighed in on the billing specialist believed it would outperform the broad market averages. While you won't be able to remain a shareholder like Hellman & Friedman will, let us know in the comments section below or on the Emdeon CAPS page whether it should have pursued other buyers.
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 thisarticle was published Motley Fool newsletter services have recommended buying shares of AT&T. 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.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.
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