The market had its worst day so far in 2012, so although your stock may have strapped on a rocket pack and gone 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 in their stock 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 two stocks that just hit the afterburners, and see whether they're truly headed into orbit.
CAPS Rating (out of 5)
Vaalco Energy (NYS: EGY)
Cimarex Energy (NYS: XEC)
The markets fell 97 points yesterday, or almost 1%, so stocks that went appreciably higher are pretty big deals.
When you're hot, you're hot
The western shores of Africa have long been imagined as a prime region for oil discovery, and the Kwanza basin off Angola's coast is shaping up to afford just that kind of opportunity. While Vaalco Energy has been in the space for a while, larger names are now sweeping in.
Both Statoil and Eni took ownership of several blocs in that same region, joining BP (NYS: BP) , Petrobras (NYS: PBR) , and Vaalco as the Sonangol government divvies up the acreage. The oil explorer says discoveries made there indicate that it has the right conditions to hit it big.
It certainly doesn't want to lose the opportunity, so it announced that it has won an extension from the government as it works with them to find a partner and explore its options in the basin. However, that also highlights the risk with an investment in Vaalco, as it currently has no one to help it, as well as the facts that it's going to need more seismic data and no drilling has actually begun.
Highly rated CAPS All-Star EnigmaDude believes Vaalco is ready to strike it rich in Africa, as do more than 1,500 other CAPS members weighing on the oil exploration outfit. Add Vaalco to the Fool's free portfolio tracker and tell us on the Vaalco Energy CAPS page if you think it can turn potential into reality.
A fluid situation
The mild winter we've enjoyed is keeping natural gas inventories at record levels and pricing depressed. Unless there's a blistering cold snap soon, oil traders aren't seeing the nat-gas market improving anytime soon.
All of which helps explain why Cimarex Energy is focusing almost all of its attention in 2012 -- not to mention its capital spending budget -- on oils and natural gas liquids, which are commanding much higher prices on the market. Even though dry-gas rigs account for only 47% of the drill compared to 80% a year ago, the liquid drilling still pumps out enough dry gas to keep the storage facilities full.
While that makes pipeline storage facility operators like Kinder Morgan Energy Partners (NYS: KMP) an attractive investment, the market liked Cimarex's decision to go where the profits are. Since profits and production were down in 2011, this year is expected to be much better as a result.
CAPS member pchop123 appreciates their string of outsized gains and beating of analyst expectations over the past few quarters -- even this quarter, they exceeded forecasts -- but you can then tell us on the Cimarex Energy CAPS page if this trend will continue, then add the energy specialist to your own Watchlist to keep abreast of developments.
Going into orbit
These three companies may have divergent futures despite their short-term bounce, so check out for free two companies the Motley Fool thinks have a can't-fail future. Hurry, though, because the free look is available for a limited time only.
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 Petroleo Brasileiro and Statoil A. 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.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.