Whoa! My Stock Just Crushed the Market!
U.S. markets tumbled as Europe's economy balances on the precipice, 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)
|Anadys Pharmaceuticals (NAS: ANDS)||*****||251%|
|El Paso (NYS: EP)||****||24.8%|
|Brigham Exploration (NAS: BEXP)||***||21.1%|
With the Dow Jones Industrial Average (INDEX: ^DJI) plummeting 247 points yesterday, or 2.1%, stocks that went appreciably higher are pretty big deals.
A growing opportunity
All three of today's stocks rose as a result of buyout offers. Anadys Pharmaceuticals agreed to be bought by industry giant Roche for $230 million; El Paso got a $21.1 billion offer from Kinder Morgan (NYS: KMI) , which in turn might sell off some of the assets to third parties like Occidental Petroleum or Hess; and Brigham Exploration got a $4.4 billion payday from Statoil (NYS: STO) .
Anadys is looking to get its treatment of chronic infections with hepatitis C virus through the FDA gauntlet, and a partner like Roche will likely help it navigate those waters. Roche says Anadys' Setrobuvir will fit neatly in with its portfolio of hepatitis C drugs. The global hepatitis market was estimated at around $5 billion in 2009, with 350 million new cases of hepatitis B diagnosed every year and 170 million new hepatitis C cases. (Hepatitis A has about 1.4 million new cases diagnosed annually). As a result, it's a crowded market, too, with Merck, Vertex Pharmaceuticals (NAS: VRTX) , and GlaxoSmithKline seeking out treatments.
That kind of opportunity had CAPS All-Stars betting Anadys would succeed, with 86% of those rating it believing it would outperform the broad market averages. Add the pharmaceutical to your Watchlist to keep abreast of the buyout developments.
In retrospect, El Paso's extensive shale field plays made it an obvious target for someone looking to access up-and-coming regions like the Eagle Ford, where it was expending most of its energy in developing the region. More than a third of its capital expenditures over the past six months were in the Eagle Ford, more than in the Haynesville and Altamont fields combined.
Kinder Morgan is hoping someone comes along to help it reduce its ballooning debt load as a result of the acquisition. The energy pipeline company will see its debt mushroom from $3.2 billion to more than $14 billion. The deal won't do anything for Kinder Morgan in the eyes of the ratings agencies, as they've already started putting negative watches out on its debt because of the new risks associated with the purchase.
El Paso was seen as a winning investment before the buyout announcement, with 97% of the CAPS members rating it agreeing it would beat the Street. Tell us in the comments section below or on the El Paso CAPS page whether you think this deal will be consummated, and add it to your Watchlist to keep up to date on new developments.
The inside track to profits
Another energy play getting bought out is Brigham Exploration, whose Bakken assets proved attractive to Statoil, which is facing declining production in the North Sea. It now has its foot in the Marcellus, Eagle Ford, and Bakken plays, where the latter itself holds up to 4.3 billion barrels of recoverable oil,and it will give Statoil 375,000 net acres in the Williston basin.
That was precisely the reason CAPS member Keekers44 expected Brigham to outperform the market on its own.
Some believe BEXP is the best way to play the Bakken with 375,800 net acres and years of inventory to complete. It is also a pure play on the Williston Basin. BEXP consistently outperforms its competition.
Let us know on the Brigham Exploration CAPS page whether you think this is a good reason to take a stake in Statoil, and then add the stock to the Fool's free portfolio tracker to see whether it makes good on the promise it holds.
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 this article was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Vertex Pharmaceuticals and Statoil A. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't 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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