The markets were ecstatic about the actions of the world's central banks to try to address the European sovereign-debt crisis. But just because your stock strapped on a rocket pack and went 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)
Zoltek (NAS: ZOLT)
AMR (NYS: AMR)
James River Coal (NAS: JRCC)
Source: Motley Fool CAPS.
With the Dow roaring ahead 490 points yesterday, or 4.2% -- its best day in more than two years -- stocks that went appreciably higher are pretty big deals.
Blowing in the wind?
Carbon-fiber maker Zoltek took a huge hit last quarter after wind-power giant Vestas cut orders by 40%, bringing to mind the carnage wrought when Sinovel stopped taking orders from its supplier American Superconductor (NAS: AMSC) . But it seems to have bounced back nicely. Zoltek reported that revenues for its fiscal fourth quarter jumped 38% year over year, with operating and net income swinging from year-ago losses to profits. Whether that can hold despite the company's bullish outlook remains to be seen, as SatCon Technology and Power-One (NAS: PWER) continue to face headwinds.
With 95% of CAPS members rating Zoltek to gust higher, it's clear they expect the facilities being restarted in Mexico and the new facilities opening in Missouri to have this company moving forward. Add Zoltek to your watchlist to see whether the industry just needs time to get out of the doldrums.
Crash and burn
Considering that American Airlines parent AMR is under bankruptcy court protection, there hardly seems to be much cause to celebrate. Of course, if it comes out of this without the legacy costs of pensions weighing it down, it will be in a much better position -- although that won't prevent current shareholders from being wiped out entirely.
United Continental's United Airlines pilots saw promised pay and benefits slashed when the company terminated its pension plans, even as company CEO Glenn Tilton was rewarded with $20 million in new company stock when the airline emerged from bankruptcy. Funny how that works, but the Pension Benefit Guarantee Corp., which already has a deficit this year running north of $16 billion, could be on the hook for American's $18.5 billion in promised benefits, against which the plans reported just $8.3 billion in assets.
CAPS All-Stars were already preparing for a meltdown, although a large number still held out hope that the airline and unions could reach an agreement. Now that it's in bankruptcy, it's just a matter of time before the common stock becomes worthless.
Tell us on the AMR CAPS page or in the comments section below how you think it will work out, and then add it to your watchlist to see whether the taxpayer is left holding the bag.
Who's got short shorts?
Short interest in coal miner James River Coal recently hit a 52-week high. But with nearly 40% of the float sold short, it certainly looks as though it may have been some shorts covering their positions that helped the stock make the gains it did yesterday.
The market for metallurgical coal is improving, as recent earnings results from Peabody Energy (NYS: BTU) and Arch Coal highlight. Peabody saw earnings jump 22% on higher coal demand, and Arch shipped more met coal in the quarter despite a decline in its own profits. Moreover, AK Steel (NYS: AKS) recently acquired interests in iron ore and met coal producers, with the goal of becoming more vertically integrated. The sector appears to be on the road to a rebound.
As CAPS member getrichslowfool sees it: "This stock has lost a tremendous amount of value after missing earnings during a macroeconomic crisis. As the winter gears up, if the macroeconomic issues clear up even just a bit, this stock will explode with huge rallies."
Add your opinion on what the future holds by visiting the James River Coal CAPS page, and then follow the twists and turns by adding the stock to the Fool's free portfolio tracker.
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 re-entry or off to infinity and beyond.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Power-One. 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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