Some stocks are one-hit wonders, making a big splash when they first appear and then quickly fizzling into obscurity or oblivion. But for other stocks, that initial big move is only a preview for even bigger and better gains to come.
Today, we've listed three stocks that made some of the biggest upward moves over the past month, despite the incredible volatility in the market, which we'll pair with the ratings issued by our Motley Fool CAPS community. The higher each stock's rating, the greater CAPS members' faith in that company's ability to keep on beating the market.
1 Month % Change
CAPS Rating (out of 5)
Direxion Daily Small Cap Bear 3X Shares (NYS: TZA)
Emdeon (NYS: EM)
Bank of Ireland (NYS: IRE)
Source: FinViz.com; one-month % change from June 24 to July 25.
While you were out, the markets collapsed and may continue to do so as the impact of the U.S. credit downgrade filters through. So before we get shaken out again, let's see why the CAPS community thinks some of these companies might continue to outperform the market.
A mighty temblor
The biggest movers and shakers on the market over the past month were any exchange -traded fund that shorted the indexes. Not surprisingly, the Direxion Daily Small Cap Bear 3X Shares ETF was one of the biggest movers, since small-cap stocks are already a volatile bunch, and in these days of 4% and 5% drops in the stodgier Dow, they would react in an even more extreme manner -- even more so with these highly leveraged ETFs. Investors would be well advised to tread carefully when using them, since they're designed for day traders. Even Direxion says they're really not appropriate for longer holding periods.
Trying to profit from these leveraged funds is difficult, if not dangerous, to your financial health. When the index moves 10% in one direction or the other, a fund like the Small Cap Bear looks to triple that. Instead of betting on the underlying stocks, they use a complex system of financial instruments such as swaps and futures to achieve the negative return. For example, the Direxion ETF is heavily weighted in the Russell 2000 Index Small Swap.
I wouldn't recommend using this or any leveraged ETF anywhere other than on CAPS. I agree with All-Star leohaas, who says this would be a long-term loser for the average investor: "This kind of triple ETF will always underperform over the long run due to the way it is constructed. Note: I am not saying you cannot make any money holding this ETF, just that over a prolonged time it will lose money."
You can add the ETF to your watchlist if you'd like to see the havoc it can wreak in a portfolio.
Fade to black
Another way to win big is to buy shares in a company about to be taken over -- or, if the rumors are true, just before the announcement is made.
Such was the case with health-care billing specialist Emdeon, which saw its shares surge the day before it announced that Blackstone Group (NYS: BX) was going to pay $3 billion for its business, or $19 a share. The stock was up 10% when the New York Post reported the rumors of a pending buyout, and it was up another 13% when the report was confirmed. With one big shareholder bailing out of the soon-to-be-private company and one staying on, there's plenty of intrigue here that has naturally attracted the trial lawyers to the case, but rumors of M&A activity were swirling even before then. Sometimes there is just smoke and no fire.
The CAPS community had been exceptionally bullish on Emdeon's future, with 95% of the CAPS members weighing in on the billing specialist believing it would outperform the broad market averages. But sowensb wasn't keen on management's prowess, so let us know in the comments section below or on the Emdeon CAPS page whether this was the best deal it could make.
Should I stay or go?
Really? A bank was a top mover this month, and an Irish bank at that? Unlike rival Allied Irish Banks (NYS: AIB) , equally troubled Bank of Ireland got a huge boost of confidence from a group of private investors that include Wilbur Ross and Prem Wasra, who took a $1.6 billion stake in the company that will ensure that it doesn't get taken over by the Irish government. AIB, without such backing, may still get subsumed in the maw of nationalization, which explains why over the past 30 days its stock trades 50% lower.
Although part of my thesis in marking Bank of Ireland to underperform on CAPS was the probability that it would get fully nationalized, thus wiping out common shareholders, the financial condition of the country and of Europe emboldens me to let my underperform rating ride. Maneuvers by savvy investors like Ross and Wasra, who's been called the "Canadian Warren Buffett," make an outright investment (or short) too risky to take, and governments are far too fickle to know what they'll do next.
I agree that a 70% Government ownership is not necessarily a death sentence. Many other US state owned entities are doing well at a higher percentage. It's the unknown of the sovereign debt that they hold and the overall stability of the Euro zone. I do agree that IRE should weather it, but at what price??? Confidence in the area will keep the shares depressed for a long time. I think the entry point is lower and the pops/drops dangerous for investors. NBG continues to decline as well and the possibility of Greek Default continues to overhang the markets and is a serious enough likelihood to stay wary.
Ross is banking on a turnaround, though. Deposit your thoughts on the Bank of Ireland CAPS page if you agree that this new lease on life just confirms the luck of the Irish.
Shake, rattle, and roll
With these stocks shaking the market this past month, it pays to start your own research on them at Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.
At the time thisarticle was published 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.Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. You can shake, rattle, and roll The Motley Fool's disclosure policy, but it still won't break.
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