Earnings Meant Nothing to These Top Performers

Earnings of blue chip stocks had been driving the Dow higher all week long, but Travelersmissed projections and Europe's finances weighed on doubts once again, causing the index to tumble 120 points Friday. Still, not every stock fell, and in fact some even went high -- and by double-digit percentages to boot!

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 could just as quickly make the return trip down.

On the up and up?
One that could quickly make a new trip to the cellar is New Oriental Education, which has been slammed by accusations of fraud by the short-selling outfit Muddy Waters. They contend that contrary to management's statements, the Chinese provider of English test-prep services has a franchise structure that operates for the profit of insiders and to the detriment of shareholders. What got New Oriental moving higher again was management's response to the allegations: It denied the allegations (naturally), and it reiterated that its operating structure is what it said it was, but it was still forming a committee to look into the charges.

That might be all well and good, but management did have to come clean that 21 of its schools were operated by others but that they were immaterial to results and were never counted as company-owned to begin with.

We've seen these kinds of allegations plenty of times in the past. Muddy Waters itself has led the charge on a number of them. Unfortunately, all too often the allegations stick. Management teams have tried the tactic of forcefully refuting the charges, but most of the time it's bluster and the stock has been irreparably harmed. Others, like Silvercorp Metals (NYS: SVM) , prefer to fight rather than give in but limp along with shares that trade at severely discounted prices. Tell me on the New Oriental Education CAPS page whether you think it will teach the short sellers a lesson.

Never say never
At least for Astex Pharmaceuticals, it was real good news that sent its stock soaring higher. European regulators recommended its myelodysplastic syndrome (MDS) drug Dacogen also be approved for the treatment of acute myeloid leukemia in seniors. Earlier this year, the FDA's advisory panel recommended denying Dacogen's expanded use, which leads one naturally to question once again whether U.S. patients are being protected or harmed by the regulatory agency. Plenty of drugs gain approval internationally but are denied to patients here at home.

German researchers found that MDS patients with monosomy 7 -- a condition where a patient lacks one of the chromosome 7 pairs -- who were treated with Dacogen or Celgene's Vidaza had longer overall survival times than patients who received any other forms of treatment.

Last month I reiterated fellow Fool Sean Williams' contention that investors were getting all of Astex's drug pipeline for virtually nothing, but now it seems we can add Dacogen back into the mix. Tell me in the comments section below or on the Astex Pharmaceuticals CAPS page whether you agree there's still a lot of value to be found in this biopharmaceutical.

Remember that
While memory-chipmaker SanDisk beat expectations when it announced second quarter earnings, you can't really blame the analysts. The chipmaker had said earlier this year it expected to generate between $950 million and $1.1 billion, down from previous forecasts of $1.3 billion. So Wall Street lowered its estimates accordingly, but SanDisk ended up coming out above them (though still below the previous expectations).

Both SanDisk and Micron (NAS: MU) have been suffering from an inventory glut, and their stocks have been weighed down by the situation. Although I was a bit early making a CAPScall on SanDisk, believing that all the bad news had been priced in, it seems that outperform rating on CAPS I made will be paying off soon. Do you think it's now ready to make steady progress? Tell me in the comments box below.

The mobile revolution that until recently has been powering SanDisk's returns still has a lot of room to run. Indeed, The Motley Fool thinks we're still in early innings on what may be a trillion-dollar revolution. Find out which stock the Fool will be cashing in on it in a special report you can download for free! But hurry, because it's available only for a limited time.

The article Earnings Meant Nothing to These Top Performers originally appeared on Fool.com.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out hisholdings and a short bio . Motley Fool newsletter services have recommended buying shares of New Oriental Education. We Fools don't 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. The Motley Fool has a disclosure policy.

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