Whoa! My Stock Just Whupped the Market!

Stocks fell for a third straight day Wednesday as fears about Europe's debt crisis deepened. 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)

ViroPharma (NAS: VPHM)






Zalicus (NAS: ZLCS)



Source: Motley Fool CAPS.

The market tumbled 131 points Wednesday, or 1.1%, so stocks that went appreciably higher are pretty big deals.

When you're hot, you're hot
If ViroPharma's reading of the new label the FDA gave its drug Vancocin is correct, it will have another three years of exclusivity in the market without the threat of generics. Using data from Sanofi (NYS: SNY) subsidiary Genzyme, ViroPharma now has labeling that includes clinical safety and efficacy data. If a generic is offered without that labeling, it may render the drug less safe and so would be excluded from the market.

And generics would have to omit the labeling info because ViroPharma purchased exclusive rights to the data from Genzyme, agreeing to pay 10% in royalties on sales of Vancocin this year and next, followed by 16% royalty fees in the third year. ViroPharma reported third-quarter sales jumped 13% to more than $76 million so another three years of exclusivity is a lucrative opportunity.

At the same time, ViroPharma launched its epilepsy drug in the U.K. and its treatment for hereditary angioedema, Cinryze, got EU approval back in June. It's an exciting time for ViroPharma, which explains why 97% of the 1,266 CAPS members rating the biotech think it will outperform the broad market averages. Add ViroPharma to your watchlist to see whether it can build something even bigger.

Call off the dogs
Why did AMR jump in value? Why do dead cats bounce? Neither has anything to do with them having any life in them.

American Airlines' parent got a boost from Delta Air Lines' (NYS: DAL) reporting it foresees "solid" profit growth next year as it plans to cut capacity by 2% to 3% in an effort to raise ticket prices. With Europe possibly heading for a new recession, carriers want to trim capacity ahead of the downturn, and Delta says it ultimately wants to cut 7% to 8% from its fleet.

American wasn't the only carrier flying higher, as US Airways (NYS: LCC) also jumped 7%. Don't expect the gains at AMR to hold, however. Delta's good fortune is not American's and its landing gear is still stuck closed.

While 59% of the broader community thinks AMR can eke out a win, just 40% of the top-rated All-Stars agree. Add the airline to your watchlist and tell us on the AMR CAPS page if it's a stock you should bounce from your portfolio.

Blowing in the wind
Pain and immuno-inflammatory-disease drug developer Zalicus was all over the place Wednesday for no apparent reason. It started off dropping more than 5% in morning trading and then began climbing, rising more than 10% at one point.

There was nothing to account for the manic maneuvers. Last week it announced the initiation of a phase 1 clinical trial evaluating a new formulation of Z160, an oral N-type calcium channel blocker.

Zalicus generates revenues through R&D collaborations with Novartis (NYS: NVS) , Amgen, and Japanese pharmaceutical Eisai. Analysts expect royalties for pain medication Exalgo to hit $36 million over the next two years, with it and Synavive in midstage trials, Zalicus' prospects for strong growth look appealing.

CAPS member thatkidfromseat admits there is risk in Zalicus, but he also sees huge rewards waiting:

Zalicus has an extreme amount of room for growth and has shown that they can successfully make a medical product in a somewhat limited market. If they stay the course, they could be a huge pick for those that take the risk

Tell us in the comments section below or on the Zalicus CAPS page if you think this makes it a pain-free investment, then put it on your watchlist to keep track of its progress.

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 contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Novartis. 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.

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