A spate of positive economic data sent the market higher yesterday. But even if your stock strapped on a rocket pack and went higher too, 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)
Advance America (NYS: AEA)
Cabela's (NYS: CAB)
Source: Yahoo Finance.
The Dow jumped 123 points yesterday, or 1%, so stocks that went appreciably higher are pretty big deals.
When you're hot, you're hot
Unlike pawn shop operator EZCORP (NAS: EZPW) or First Cash Financial (NAS: FCFS) , payday lender Advance America is wholly dependent on a line of business that has attracted the ire of regulators, politicians, and consumer agitators.
Providing financial services to the poor, unbanked, and underbanked has been a low to non-existent priority for mainstream financial institutions. Yet states have enacted laws that are leading to outlets that cater to the underserved choosing to close down, leaving those with little means fewer options.
Where such services are thriving, however, is south of the border in Mexico. Both First Cash and EZCORP have successfully operated stores there for years, and EZCORP just acquired Crediamigo, one of Mexico's top three payday lenders. So it's no surprise the takeover offer made to Advance America that sent its shares soaring yesterday came from Grupo Elektra, Mexico's leading specialty finance firm.
There was still value in the payday lender despite the opposition arrayed against it, which is why 93% of the 134 CAPS All-Stars rating Advance America marked it to outperform the broad indexes. Add the finance specialist to the Fool's free portfolio tracker to see if the class-action lawsuits that sprung up like mushrooms overnight impede the company's takeover.
Go tell it on the mountain
If you've ever been to a Cabela's store, you know the most prominent feature is the mountain you'll find built in the middle of the store featuring museum-quality animal displays. It almost not so much a store for outdoorsmen, but an 80,000 to 90,000 square foot theme park adventure.
As successful as that model has been for the sporting goods retailer -- revenues were up 5% this quarter with adjusted profits soaring 23% -- it's looking to expand in the future by contracting. Like many retailers including Wal-Mart, Best Buy, and Staples, Cabela's is looking to get even bigger by going small, opening reduced-footprint "Outpost" stores that are "only" 40,000 square feet.
The company has determined certain markets can't support its "next-generation" large format stores, but are still in need of servicing. That's where Outpost comes in, offering the same product selection though obviously in reduced quantities. One would imagine the mountain will be more of a molehill if it's featured at all.
With almost 91% of the 705 CAPS members rating the sporting goods retailer to outperform the market street going forward, it's apparent they think there are still big things to expect from Cabela's. Tell us on the Cabela's CAPS page if you believe it will move mountains to grow, then add it to your own Watchlist to keep the stock in your sights.
Going into orbit
These two companies may have divergent futures despite their short term bounce, so check out for free the one stock the Motley Fool thinks will break all the rules to win. Hurry though, because the free look at the new report "Discover the Next Rule-Breaking Multibagger" is available for a limited time only.
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Best Buy, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Staples, Wal-Mart Stores, and Best Buy.Motley Fool newsletter serviceshave recommended buying shares of Staples and Wal-Mart, as well as writing covered calls on Best Buy and creating a diagonal call position in Wal-Mart. 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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