Whoa! What Just Happened to My Stock?
And down we go again as the markets turned tail once again and fell. But just because 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 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)
|China Green Agriculture (NYS: CGA)||***||14.0%|
|Liquidity Services (NAS: LQDT)||****||11.4%|
|Hanwha SolarOne (NAS: HSOL)||**||10.5%|
With the Dow Jones Industrial Average (INDEX: ^DJI) tumbling 180 points yesterday, or 1.6%, stocks that went appreciably higher are pretty big deals.
Maybe the tour of its new Gufeng plant the other day was a real success and an investor decided to plunk down a lot of coin in China Green Agriculture. As there was no specific news to account for the fertilizer company to soar when the market was tanking, it could mean someone liked what he or she saw.
Like Yongye International (NAS: YONG) , which also makes humic acid-based fertilizers, CGA bought Gufeng for just $8.8 million with the intention of expanding its capacity. Its latest quarterly report shows the new facilities are growing like a weed, contributing $40 million in the quarter and adding an additional $107 million over the past year! That's more than double the output it had a year ago.
I've expressed my doubts about China Green Agriculture before, and while sales did rise 272%, the cost of those sales rose 453%. I'm not alone in wondering how long CGA will be able to keep up such growth if it costs so much more to sell its products. With bigger, better-financed chemical giants like Monsanto (NYS: MON) angling for a piece of China's agricultural plot of land, CGA may find itself coming under even greater pressure in the future.
I've rated it on CAPS to underperform the market, but I'm in the decided minority there; 94% of the more than 1,050 members who've weighed in see it beating the broad market averages. Add the fertilizer maker to your watchlist, and then dig deeper into the loam of opinion on the China Green Agriculture CAPS page.
Earlier this month, Liquidity Services rocketed higher on news that it was purchasing Jacobs Trading, a consumer-goods remarketing business that would strengthen its existing relationship with Wal-Mart. Yesterday's bounce was driven by the initiation of Liquidity Services analyst coverage at Stifel Nicholas with a buy rating.
Liquidity Services is akin to an eBay (NAS: EBAY) for corporations and government agencies, allowing them to auction off surplus assets in a secure marketplace. This past month has seen a parade of analysts taking a closer look at the auction marketplace and liking what they see. Barrington Research raised its target price, and Oppenheimer upgraded its rating. Zacks did downgrade Liquidity Services last month, but that seems to be a case of poor timing on its part, as shares have raced ahead 48% since then.
With 98% of the All-Star members rating it to outperform the broad market averages, it seems the four-star rating is well deserved. Tell us in the comments section below or on the Liquidity Services CAPS page whether you'd bid on it at these prices, and then add the auction house to your watchlist.
A betting man
The CAPS Solar sector dropped almost 5% yesterday, far outpacing the broader market's decline, but Hanwha Solar and SunPower (NAS: SPWRA) both bucked the tide, though the latter's rise at just 1.5% was far more modest than the former's, even if at one point it had been almost 15%.
There was no real news indicating why either should have jumped, though, or why Hanwha was able to sustain much of its gains. Its parent company, Hanwha International, led a $50 million financing program for OneRoof, a company that installs solar panels for homeowners, but that hardly seems like an impetus for the jump. Google announced something similar, providing $75 million to Clean Power Finance to help with installation costs.
Without any news, though, it's all a guessing game, also meaning Hanwha is likely to give up those gains as it's done before.
But with 93% of the more than 1,200 CAPS members rating the solar shop to outperform the market, I'm probably in the minority in thinking its gains will be short-lived. You can shine a light on your opinion by visiting the Hanwha SolarOne CAPS page, and you can stay on top of the company's developments by adding it to your watchlist.
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 Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Google, Wal-Mart Stores, China Green Agriculture, and Yongye International. Motley Fool newsletter services have recommended buying shares of China Green Agriculture, Yongye International, Google, eBay, Liquidity Services, and Wal-Mart Stores, creating a synthetic long position in Monsanto, and creating a diagonal call position in Wal-Mart Stores. 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. The Motley Fool has a disclosure policy.