Whoa! The Dow's Got Nothing on These 2 Stocks


The third time pays for all, they say, and the Dow Jones Industrial Average jumped 114 points, marking the third straight day of solid gains and putting it just 127 points away from hitting its 52-week high. While the stocks below strapped on rocket packs and went even higher, 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.

Swimming with the tide
There's nothing slimy about the way Amarin (NAS: AMRN) is building up confidence in its fish oil treatment AMR-101, which is on track for FDA approval this summer. It recently was awarded U.S. patent office protection for its formulation, which ought to insulate it from attack when it hits the market, and a smaller rival just flunked late-stage study results. Not that they were bad, per se, just not as good as Amarin's therapy, which is just another feather in its cap (scale on its back?) as analysts continue to talk up the possibility of the biotech being a takeover candidate.

My Foolish colleague Brian Orelli has suggested one of the larger pharmas like Pfizer or Abbott Labs would find Amarin a perfect fit, and I've speculated on GlaxoSmithKline, which has the most to lose if AMR-101 gets approved, as it will likely steal share from its Lovaza. Analysts at Sanford Bernstein say AstraZeneca (NYS: AZN) is a more likely candidate, as its pipeline is exceptionally weak and it has among the lowest valuations in the pharmaceutical industry. It needs a bold stroke to catapult it forward, and Amarin would fit in well with its need for a company with revenues and a pipeline of its own. Also mentioned were Forest Labs and Amylin Pharmaceuticals (NAS: AMLN) , and AstraZeneca admits it's willing to talk to "lots" of companies.

Highly rated CAPS All-Star kkconway says the scales are tilting in Amarin's favor, noting that it offers just the thing AstraZeneca is looking for: product.

Risk/reward ratio seems worth a shot, and the technicals look very good short -to- mid term. I bought some real life mid-term call options today, so my money's where my mouth is. Did I mention they actually have a product to sell?

Add Amarin to the Fool's free portfolio tracker and tell me in the comments section below or on the Amarin CAPS page if you think this biotech is one that won't be swimming with the fishes.

A wrench in the machinery
Mergers and acquisitions generally get investors excited, but sometimes there's less than meets the eye when the surface of the deal is scratched to see what it means below. That might be the case with Inergy's (NAS: NRGY) deal to sell its retail propane business to Suburban Propane (NYS: SPH) for $1.8 billion.

The deal's definitely good for Suburban, which becomes the country's third-largest propane distributor and gets to expand its presence into 11 new states (the 600,000 customers it gets in the deal actually cover 33 states, so the expansion is significant). And on the surface, it looks promising to Inergy too, in that it will get $200 million in cash, $600 million in common units, and up to $1 billion in senior notes for the business. But underneath, as the Fool's Travis Hoium points out, it's lopping off a large chunk of its customer base. It also IPO'd its midstream business into Inergy Midstream.

With so many parts moving at the moment and the transition to a smaller, presumably leaner operation still in its infancy, I agree with Travis' suggestion that a wait-and-see attitude is in order when it comes to an investment here. Chasing Inergy's stock up is probably not wise at the moment.

It does still pay a hefty dividend, as CAPS member motleyfoolchen notes, one that currently yields 16.7%. But Inergy's payout ratio has been well in excess of 100% for the past few years (normally, anything above 80% is cause to look a bit further), so its ability to maintain its dividend at these levels isn't a given. While over the past decade it has steadily increased the dividend, the fact that it needs to restructure its business so dramatically suggests business is more difficult these days for it.

For that reason I'm rating Inergy to underperform the market indexes, but let us know on the Inergy CAPS page if you think the retail customer sale is good for business, and add the propane dealer to your watchlist to keep an eye on its dividend.

Going into orbit
These two companies may have divergent futures despite their short-term bounce, so check out for free one growth stock The Motley Fool thinks will 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 Pfizer, 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 Abbott Laboratories.Motley Fool newsletter serviceshave recommended buying shares of GlaxoSmithKline and Pfizer. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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