The markets managed to stage a small rally yesterday after some positive economic data was released, 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)
Frontline (NYS: FRO)
Flotek (NYS: FTK)
Overseas Shipholding (NYS: OSG)
With the markets rising 115 points yesterday, or 1%, stocks that went appreciably higher are pretty big deals.
Shining a light on growth
There was no company-specific news to cause the jump in price for either Frontline or Overseas Shipholding, but with both companies being oil tanker specialists, it might be safe to assume that with Europe on the verge of collapse and saber-rattling jangling nerves in the Middle East, there are some who are looking for oil to become an even more precious commodity.
Like the glut of ships that sunk the valuations of dry bulk shippers DryShips (NAS: DRYS) and Excel Maritime (NYS: EXM) , the tanker market has also been floundering on a sea of excess inventory. Very large crude carriers, which can hold several million gallons of oil each, find themselves suddenly in demand, with charter costs jumping 6%. According to industry analysts, monthly bookings of Persian Gulf oil tankers rose to its highest since at least January 2007.
The International Atomic Energy Agency says Iran is developing weaponized nuclear technology, which is nothing new from a U.S. intelligence perspective, but basically amounts to the first time the international community is waking up to the threat the rogue nation poses. It's also rumored that Israel may attack Iran to prevent it from successfully becoming a nuclear nation, perhaps as soon as next month. The potential for the Middle East devolving into chaos and war could threaten oil supplies, hence the need to store oil at sea.
It could be good timing for tanker companies whose losses are already narrowing as they report earnings. Frontline reported earnings after the market's close yesterday, showing that its losses shrank to just $0.02 a share, down from $0.12 a year ago, while revenues jumped 53%, though that was largely due to acquisitions made. Teekay said it had adjusted losses of $0.58 a share, compared with the $0.64 loss Wall Street was anticipating. Even financially troubled General Maritime beat analyst expectations, though its losses actually widened.
It might not come fast enough for Overseas Shipholding, however, which actually missed forecasts by $0.10 a share. It's subject to the whims of the spot market for charter rates, more so than Frontline, which tends to have long-term contracts. Standard & Poor's is keeping an eye on OSG's credit rating, which is already in junk territory, for a possible downgrade.
CAPS member popeye1250 is hopeful about Overseas and expects a few shipping companies to go under.
It's all about supply and demand in oil and in ships. Gas prices (and demand) are headed down again and it looks like we'll be having (another? or the same one?) recession for the next two to five years. And China isn't looking good either. The time to buy will be when a lot of the shippers have gone out of business. Then you'll be able to make a lot of money.
CAPS member arvelm88 acknowledges Frontline's stronger standing, joining more than 1,500 CAPS members who've rated the oil tanker company to outperform the broad market averages. Add Overseas Shipholding to your watchlist and let us know on the Frontline CAPS page is you see the international political unrest keeping the tanker afloat.
Still has a pulse
Oil services firm Flotek Industries didn't drive higher yesterday on Middle East tensions -- but rather better-than-expected earnings results. The question that should be asked, though, is "unexpected by whom?"
Flotek has been letting us know all along that business is getting better. At the end of September, it said operations were improving substantially, with revenues in August coming in higher than what it realized in July, while cash on its balance sheet was growing. And then just a few weeks ago, it said that trend was continuing, and it expected revenues to exceed forecasts by $14 million. If analysts were caught flat-footed, whose fault is that?
With 769 CAPS members weighing in on Flotek, 96% of those believe it will continue to school Wall Street. Tell us on the Flotek CAPS page or in the comments section below if you think analysts will continue to lag behind, then go and add it to your watchlist to see how it plays out.
Going into orbit
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 thisarticle was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
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