Whoa! What Just Happened to My Stock?
Housing starts disappointed anyone who hasn't really been paying attention, but coupled with China expecting to perform worse than previously forecasted, the market couldn't muster any strength. However, just because your stock strapped on a rocket pack and went higher instead, resist the urge to high-five everyone in the cubicles next to you.
Smart investors won't celebrate until they know why their stock surged. 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? The markets fell 68 points yesterday, or half a percent, so stocks that went appreciably higher are pretty big deals. But let's see whether they're truly headed into orbit.
CAPS Rating (out of 5)
|Suntech Power (NYS: STP)||***||14.1%|
|Amarin (NAS: AMRN)||****||12%|
The minuscule tariff the U.S. imposed on Chinese solar-panel imports may have heartened foreign manufacturers like Suntech Power, JA Solar (NAS: JASO) , and Yingli Green Energy (NYS: YGE) , while disappointing U.S. makers.
Yet even the Chinese manufacturers that might benefit most from the decision aren't a picture of health, either. JA Solar, for example, just reported results that showed mounting losses and plummeting shipments. Jinko Solar saw shipments drop even worse and turned in a negative gross margin.
Earlier this year I marked Suntech to underperform the markets after German market orders came in well ahead of expectations. I suspected it would be a short-lived bounce as customers had sped up their timeline to buy ahead of subsidy-cut deadlines, and thus far it has played out as anticipated. If I could double down here, I would, because I think this bounce as well will soon fall apart and Suntech will continue its downward spiral.
Tell me in the comments section below or on the Suntech Power CAPS page whether you agree with my cloudy outlook for solar, and then add the sun shop to the Fool's free portfolio tracker.
I agree with the Fool's Brian Orelli that fish-oil salesman Amarin will be bought out later rather than sooner but will be bought nonetheless. While he speculates that Pfizer, Merck, or even Abbott Labs would be likely contenders considering their interest in cholesterol and other heart drugs, my own bet is on GlaxoSmithKline (NYS: GSK) , whose competing Lovaza has the most to lose if Amarin's AMR-101 receives FDA approval this summer.
The victory AMR-101 was just handed by the U.S. patent office ensures it protection, and the better safety profile the therapy presents will allow it to steal much of Lovaza's market share. Management previously talked tough about going it alone and not selling out, but with only one drug to offer and patent protection possible, someone's going to flash enough dollar bills to entice them to say yes.
I was late to the game in rating Amarin to outperform the market averages, yet my rating earlier this month is still streaking ahead. I agree with CAPS member Tappercoon that the biotech doesn't even need the incentive of a suitor to see greater gains still: "The cloud over the patent issue of Amarin lead drug is clearing up. With a FDA approval date in July 2012, I expect Amarin will continue to trend up even without the speculation of a buyout."
Tell us on the Amarin CAPS page how rich a reward you think the market will bestow on it, and then add it to your own Watchlist to see how quickly it can pay off.
Going into orbit
These two companies may have divergent futures despite their short-term bounces, 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 this article was published Fool contributorRich Dupreyowns shares of Pfizer, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Abbott Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Pfizer, GlaxoSmithKline, and Abbott Laboratories. 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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