A Gloomy Outlook Couldn't Stop These Stocks

Shoes are dropping all over Europe now as Moody's cut its outlook to negative for Germany, the Netherlands, and Luxembourg, dinging some of the countries that would be financially responsible for bailing out Spain and Italy should that fateful moment ever arise. The Dow tumbled another 104 points yesterday in response. Still, some stocks managed to go the other way, many by double-digit percentages.

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.


Yesterday's % Chg.


CAPS Rating
(out of 5)

Oclaro (NAS: OCLR)








E-Commerce China Dangdang (NAS: DANG)




Merger mania was able to trump European concerns two days ago, and some of that euphoria swept into yesterday's results as optical networking specialist Oclaro completed its acquisition of Opnext that was announced back in March. With the acquisition, Oclaro becomes the second-largest optical networking specialist, putting it just behind Finisar but ahead of JDS Uniphase (NAS: JDSU) .

While there's a lull in capex spending at wireless carriers who pause as the economy lags, hitting revenues of equipment makers down the line, the growth in mobile computing and communications is going to require that they eventually upgrade their systems. The merger should help Oclaro capture more business and realize the economies of scale that were promised.

The Fool's Anders Bylund wonders whether the synergies will really materialize, as Oclaro and Opnext have been hurting and JDS Uniphase could always dip into its considerable cash war chest if it needs to. Tell me in the comments box below whether you think Oclaro's in a better position now or if it will be further weighed down by Opnext's own sagging operations.

Fill 'er up!
Actually being able to sell your alternative fuels for use in cars requires the imprimatur of the EPA, and cellulosic biomass fuels maker KiOR just got the government's stamp of approval, which will allow it to begin selling the fuel when it begins production sometime this year. Previously KiOR has said it can achieve an unsubsidized production cost of under $1.80 per gallon, and using a joint venture by Chevron and Weyerhaeuser to provide all of the pulpwood, whole tree chips, and forest residuals it will need to get its production facility going, it will have an opportunity to prove its mettle.

Alt fuels are typically not cost-effective. The Navy, for example, continues to experiment with biomass fuels that run at exorbitant costs. Earlier this month it pushed ahead with plans to test out a biomass fuel that costs $27 per gallon, though when mixed 50-50 with petroleum falls to $15 a gallon. Last year the Navy paid $16 a gallon for some experimental fuel from Solazyme.

I'm skeptical of the long-term value of such alt fuels to make a dent in fossil fuel consumption, but these companies have to start somewhere, and now it's up to KiOR to prove naysayers like me wrong. CAPS member IsThtRlly says that now that the "first factory is coming online, proving scalability and showing what a great product they are making" it shouldn't be too hard to shut me up. Give your views on the KiOR CAPS page or in the comments section below.

Tripping higher
It was nothing Chinese online proprietor E-Commerce China Dangdang did that caused its stock to jump, but rather it rode the coattails of another Chinese Internet giant, Baidu.com (NAS: BIDU) , which reported better-than-expected earnings and halted, at least temporarily, fears that China's economy was faltering more than anticipated.

Since the stock was puffed up because of the actions of others, I don't expect the gains to hold, especially since it surpassed even Baidu's 7% increase. Particularly since Bloomberg reports that profits at government-owned companies fell 12% over the first six months of 2012 while second-quarter GDP expansion was the slowest it's been in three years, these are conditions conducive to an e-commerce website's continued growth.

I should've left my previous underperform rating on CAPS intact, but I've gone and closed out my outperform rating now since I don't see Dangdang recovering anytime soon. Do you see more pain ahead for Chinese companies? Tell me in the comments section below or on the E-Commerce China Dangdang CAPS page whether you agree it will turn tail.

Whoa, Nelly!
None of the companies making deals yesterday pay their investors dividends, but most Dow stocks do. They're often a key component in one's portfolio, and a new Motley Fool report singles out the three Dow companies that dividend investors need to own. It's a free report, so check it out now.

The article A Gloomy Outlook Couldn't Stop These Stocks originally appeared on Fool.com.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Weyerhaeuser, Baidu.com, and Solazyme. Motley Fool newsletter services have recommended buying shares of Chevron and Baidu.com. 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.

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