Whoa! My Stock Just Crushed the Market!
The realization that Europe really is on the precipice drove markets down yesterday. But just because your stock strapped on a rocket pack and went even higher doesn't mean you should 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)
|Unisys (NYS: UIS)||**||31.4%|
|Fortinet (NAS: FTNT)||***||12.2%|
|Quest Diagnostics (NYS: DGX)||****||10.8%|
With the Dow Jones Industrial Average (INDEX: ^DJI) tumbling 207 points yesterday, or 1.7%, stocks that went appreciably higher are pretty big deals.
The main reason for growth
When you take currency fluctuations out of Unisys' third-quarter earnings report, revenues were essentially flat year over year. But profits tripled nonetheless, easily beating Wall Street's expectations and sending its shares soaring.
Cutbacks in federal spending hurt Unisys' growth, but revenue from other sources grew 14% year over year. Demand for its ClearPath software and servers was especially strong, leading technology-segment revenue up 36%. Investors should be mindful of the decline in federal government revenues, however, as last year they accounted for more than 20% of the total Unisys took in. They've been on the decline for several quarters now and could serve as a drag on performance. Relying on government largesse can be a dicey proposition and probably accounts for a lot of the volatility Unisys has experienced, which is why the Fool's Brian Pacampara suggests looking to more stable outfits like Accenture and IBM (NYS: IBM) instead.
Yet Unisys did just announce winning a contract that could be worth $10 million over 10 years to convert DOE employees to Google Apps for Government. It also recently won a three-year $10 million contract from the CDC to assist it with its IT infrastructure. Government spending tends to run in fits and starts and can make for chunky operations.
That's probably why less than two-thirds of the CAPS All-Stars rating Unisys have a favorable view of its outlook. But you can add the IT specialist to your watchlist and let us know on the Unisys CAPS page whether you think investors will continue to warm up to its prospects.
All those security breaches and high-profile hacking attacks likely drove more companies to seek out Fortinet's computer-security products -- such as firewall and antivirus devices -- this quarter, as it also handily surpassed analyst guesses. The network and data-security expert reported that revenues surged 37% in the third quarter, driving profits 28% higher.
A recent study by Juniper Networks found that 90% of businesses suffered security breaches in the past 12 months, with more than half of them experiencing at least two incidents. So it's not just Fortinet's business swelling on the opportunities created. Other industry players like Check Point Software (NAS: CHKP) witnessed increases as well, enjoying a 17% jump in earnings on a 13% increase in revenues. When Blue Coat Systems (NAS: BCSI) reports next month, it's likely to be a similar story.
Recent organized hacking attacks on prominent companies and organizations has brought to light the importance of a Unified Threat Management system that Fortinent is at the forefront of. FTNT may not be the lone (first) mover, but it seems like the top dog to me, if you know what I mean.
Tell us in the comments section below or on the Fortinet CAPS page whether you think network security will continue to be a primary concern of business, and add it to your watchlist to watch its progress.
In the spotlight
This may be something beleaguered Netflix CEO Reed Hastings should consider: When the chairman and CEO of Quest Diagnostics announced he was retiring at the end of the year, admitting the company needed new leadership, its stock soared.
Compared to rival Laboratory Corporation of America (NYS: LH) , Quest has been something of a dullard in the clinical lab testing field. Quest is being weighed down by two big acquisitions, paying a combined $1.4 billion to buy Celera and Athena earlier this year.
The diagnostics lab did beat earnings forecasts and also raised its dividend, which helped boost the stock too, but you could almost hear the collective speculation that Quest CEO Surya Mohapatra's departure might signal a takeover bid for the company. Netflix investors might similarly want to wipe their brow, though Hastings hasn't given any indication he sees himself as the problem.
With 94% of the CAPS members rating Quest to outperform the market, this could be the catalyst for an even more bullish outlook. Add the lab to the Fool's free portfolio tracker if you'd like to watch what happens when new blood is introduced to the system.
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Google and IBM.Motley Fool newsletter serviceshave recommended buying shares of Netflix, Check Point Software, Quest Diagnostics, Accenture, LabCorp, and Google. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.