Whoa! What Just Happened to My Stock?
It's a rally! The stock market's had two straight days of better than 100-point gains, but 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)
|Sky-mobi (NAS: MOBI)|
|Clearwire (NAS: CLWR)|
|MannKind (NAS: MNKD)|
The market ended the week with not too bad of a recovery, seeing how bleak things looked, so stocks that went higher are pretty big deals.
Higher and higher
The natural thing to do when a company cuts its guidance by 10% is to run up the stock by 20%, right? Well, that's exactly what happened with Chinese mobile-phone app maker Sky-mobi. It said revenues for the coming quarter would be below its original expectations because of lower handset sales and mobile carriers that are facing a more difficult environment.
That "difficult environment" includes hefty subsidies on the phones the carriers sell, which is eating into margins. Earlier this year, China Unicom (NYS: CHU) , China's second-largest carrier. reported that the subsidies will total 30% of its revenues this year, so even though its profits doubled in the quarter, it came in below analyst expectations. The largest carrier, China Mobile (NYS: CHL) expected its subsidies to rise 15% in 2011 to $2.7 billion.
Sky-mobi's other problem is that its app market is geared toward "feature phones," i.e., low-end "dumb phones." The carrier subsidies are not at this end of the market, but at the smartphone end as they attempt to drive the adoption of their 3G networks. With low-cost smartphones flooding the market, it's no wonder Sky-mobi is seeing handset sales fall.
Yet Ski-Mobi said it was excited by the opportunities its location-based social network Maopao Community was creating, and it was looking for additional growth beyond just next year. Think of Maopao as a Facebook Places or FourSquare service, and while they're still gaining a toehold of acceptance in China, the leading LBSN service is Jiepang. But the field is crowded, and Tencent also provides community and online gaming services, so how will Maopao differentiate itself to stand out?
I wouldn't be surprised to see Sky-mobi give up the gains it made on Monday. On CAPS, the community is about evenly divided on its chances for success. Let us know on the Sky-mobi CAPS page whether you think it can still connect to growth.
Calling all bulls
Didn't Sprint (NYS: S) sound the death knell for Clearwire when it inked a 15-year deal with rival LightSquared? Certainly that was the thinking last week, but rumors of additional financing were the talk of town this week.
Sprint is beset with financing problems, despite having $4 billion in cash on its balance sheet, and it costs Sprint more to borrow these days. It has $2.3 billion in debt maturing in March and is expected to announce that it is upgrading its network to LTE in the fall. Currently, Sprint relies on Clearwire's WiMax network, and while it's been losing subscribers left and right, it hasn't been those subscribing to the WiMax service. Thus, Clearwire remains very important to Sprint, and the need to throw it a lifeline if necessary is critical to Sprint's own survival.
Highly rated CAPS All-Star dockofthebay took management at its word that it was confident of getting the funding necessary, and that seems to be panning out.
Company says that it will be profitable on an EBITDA basis in 1Q of 2012, which is sooner than analysts had expected. They need financing, but CEO seems confident that they can achieve that. In the meanwhile, shares have been badly beaten down and pessimism is rampant, so I see some kind of a rebound potential here.
Add Clearwire to your watchlist, and then head over to the Clearwire CAPS page and let us know whether it's clear to you that this company can survive.
Waiting to exhale
Biotech MannKind has been dead to the world since the FDA shocked it by issuing a complete response letter calling for more tests to be run on its inhaled insulin therapy, Afrezza. With the results Pfizer (NYS: PFE) got from the market with Exubera, investors were aware that there was no such thing as a slam dunk here, but the decision caught many unawares, thinking perhaps the FDA moved the goalposts on the company.
Now the biotech reports that the regulatory agency has confirmed two clinical studies to evaluate the efficacy and safety of the inhaled insulin treatment, and the success of the meeting heartened investors enough to give MannKind a new lease on life.
With 82% of the 683 CAPS members rating the biotech to ultimately beat Wall Street's expectations, you can tell us know in the comments section below or on the MannKind CAPS page whether investors should inhale this stock or wait for better results.
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 re-entry or off to infinity and beyond.
At the time this article was published Motley Fool newsletter services have recommended buying shares of General Motors. 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. The Motley Fool has a disclosure policy.
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