These 2 Stocks Rose While the Dow Fell
If the bailout of Spain's banks -- the Spailout, as it's now being called -- was supposed to calm nerves, Europe needs to review its playbook. Sure, the markets surged last week in hopes that it would, but the reality of the massive bailout caused the Dow Jones Industrial Average to tumble 143 points yesterday as traders wondered if Europe's pockets were deep enough to bail out Spain itself and not just its banks. And Italy, too. And what does happen if Greece leaves the eurozone?
While I still see the continuous rounds of bailouts eventually ending badly, some stocks actually went in the other direction and rose sharply. But 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, because without a fundamental basis for the bounce, these stocks can quickly make the return trip down.
Sweet like sugar
Analysts helped run up the stock of biofuels maker Solazyme (NAS: SZYM) by coming out with positive positions on the oil-from-sugar plant it's building with Bunge (NYS: BG) in Brazil. They're building a 100,000-tonne production facility and analysts believe the plan is on target to begin producing in the second half of 2013.
Because the feedstock is coming from Bunge's sugarcane mill located right next door to the processing plant, there are certain synergies expected to be realized from the venture and the output from the plant will be sold into Brazil's fuel and chemicals markets.
How successful it will become remains to be seen. Right now Solazyme is surviving on taxpayer subsidies, with 59% of its R&D program revenues coming from government grants (R&D revenues account for 71% of Solazyme's total revenue). KiOR (NAS: KIOR) hasn't had an easy time of it and neither has Amyris (NAS: AMRS) , as both have come under heavy selling pressure. As questions swirl about Energy Department awards to politically connected firms, additional doubts about U.S. taxpayers funding research to benefit other countries are likely to be raised too.
There are also misgivings about using food stocks to make fuel, as ethanol producers are highly aware. Corn prices soared as the fuel placed new demands on limited supplies, and Cosan, which makes sugar-based ethanol, was socked last year when sugar prices took off. While prices have fallen 30% from their peak, new demands placed on supply could change that dynamic quickly.
The investment community has been supportive of Solazyme's efforts, though, as 95% of the Motley Fool CAPS members weighing in believe it will outperform the broad indexes, likely concurring with All-Star eagles22, who believes it isn't exactly a short-term trade but instead "a long-term, and somewhat speculative play. I really like the company's model, and their results to this point. It's a very long road though."
You can add Solazyme to your own Watchlist, then tell me in the comments section below or on the Solazyme CAPS page why it will succeed where so many others have failed.
A list of demands
The growing importance of streaming video ought to be helping KIT digital (NAS: KITD) grow and expand, but its stock has instead fallen and contracted. Shares of the maker of on-demand software that helps companies manage and distribute video over the Internet have fallen 60% since the start of the year and are down 71% from their highs. Shares dropped 30% in one day last month when the company reported that its vaunted acquisition strategy hasn't been nearly as successful as it previously said it was, and the guidance it offered was way out of whack with reality.
Since 2008, KIT has acquired a dozen companies, the majority of which were to help its clients like Disney and The Knot acquire, manage, and distribute video across various platforms, whether it's personal computers, IP-enabled televisions, or mobile devices. But at the start of May, management said that after reviewing its business it "determined our previous guidance was too high."
Naturally, the trial attorneys pounced, alleging that the acquisition integration was below what had been reported while the costs associated had been much higher. The revelations of possible mismanagement came on the heels of four executives leaving the company in a rush and KIT's chairman abruptly resigning. Obviously they knew the jig was up.
With no news to account for yesterday's 9% jump in its stock price, there's no reason to believe it will hold, particularly with lawsuits hanging over it and so much turbidity surrounding the company; I wouldn't try to catch any bounce. Late last year I closed out an underperform rating I had on KIT on CAPS because it seemed to have gotten a handle on its problems back then. Apparently I was a bit premature and should have stuck by my long-held belief that companies that make lots of acquisitions typically end up having problems trying to digest them all.
Add your opinion to the KIT digital CAPS page or in the comments box below, then add the company to your Watchlist to watch the fallout from this mess from a safe distance.
Going into orbit
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At the time this article was published Fool contributor Rich Duprey owns shares of Walt Disney, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Solazyme and Walt Disney.Motley Fool newsletter services have recommended buying shares of Walt Disney. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.