Whoa! My Stock Just Trounced the Market!
The markets plunged again yesterday as the European financial crisis continues, but even if 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)
|NovaGold Resources (ASE: NG)||**||24.3%|
|Central European Distribution (NAS: CEDC)||****||24.2%|
|Micron (NAS: MU)||****||23.4%|
With the Dow tumbling 190 points yesterday, or 1.6%, stocks that went appreciably higher are pretty big deals.
Shining a light on growth
It wasn't the prospect of higher gold prices from crumbling European finances or the contagion spreading to Hungary that caused NovaGold Resources to surge, but rather news that it was going to focus on its Donlin gold projects and spin off its copper mining Ambler division in Alaska that had investors piling in.
The new entity, to be christened NovaCopper, will own the Ambler project, which is one of the richest copper, zinc, lead, gold, and silver deposits in the world. The new company will fully control it, though NovaGold will retain an ownership interest in the spinoff, too. The spinoff is expected to be completed by the end of the first quarter of 2012.
Spinning off portions of gold companies is nothing new, as Barrick Gold (NYS: ABX) spun off African Barrick Gold last year, making it the largest U.K.-based gold miner, and gold and copper miner Freeport-McMoRan (NYS: FCX) was itself the product of a spinoff.
With 90% of the CAPS members rating NovaGold to outperform the broad market averages, it's apparent they think it will overcome the stumbles of earlier this year and will allow shareholders to realize the value contained in both companies. Let us know in the comments section below or on the NovaGold Resources CAPS page whether you think this gold miner can still strike it rich.
A source of inspiration
There was no company-specific news driving shares of Polish vodka distributor Central European Distribution higher yesterday, but a stock with an elevated short-interest ratio and option contracts expiring tomorrow may have caused more than a few investors to close out their bearish calls. Yet even with the stock up 24% yesterday, it's still down 83% in 2011.
With rising prices across Europe, attacks on its market share undermining its leadership position, and the Russian market in the midst of upheaval, many investors are hoping a buyout by someone -- I've suggestedDiageo (NYS: DEO) or Brown-Forman -- will eventually save the day.
The company appears to be cutting some corners and trying to improve pricing and input costs. Estimates for the year are $0.24 to $0.45 which at a $3 share price is a decent P/E with some upside if they deliver. Maturing debt for 2013 is 3X the cash they currently have, but I've learned during this recession that debt holders don't want to own a company and if there's any profit they would rather refinance than put a padlock on the doors. I'm willing to give them some benefit of the doubt that they can sell a ression proof product with a strong brand name in sufficient volume to make a profit.
Tell us on the Central European Distribution CAPS page or in the comments section below if owning this stock would drive you to drink, then go add it to your watchlist to see how it plays out.
Under the weather
Maybe it signals the start of sunnier days. Micron Technology has seen its stock halved over the course of the year as the decline of the PC market since the introduction of the iPad caused chip industry fundamentals to sag. Yet through it all, it has remained one of a select few chip companies that's actually still turning a profit despite falling DRAM prices constraining margins.
Yesterday it gained a significant victory, however, when the patent-infringement lawsuit Rambus (NAS: RMBS) filed against ended in vindication for the chip maker. A jury sided with Micron 9-3 that it did not trample upon the tech licensing company's intellectual property. With as much as $12 billion in damages by some estimates hanging over its head, getting out from under that sword of Damocles will allow Micron to move forward, though the probability of an appeal is high.
The decline of the PC market since the introduction of the iPad has added to the woes of the industry, and analysts are looking for a wave of consolidation to shore up sagging fundamentals.
More than 91% of the 1,327 CAPS members rating Micron believed it would best Rambus in the courtroom and go on to outperform in the marketplace, too. Add Micron Technology to the Fool's free portfolio tracker to see if this chip company can continue to put some distance between it and Rambus.
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 this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Diageo and Freeport-McMoRan Copper & Gold. Motley Fool newsletter services have recommended buying shares of Diageo. 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.