The Dow Jones Industrial Average (INDEX: ^DJI) jumped 136 points yesterday, or over 1%, as ADP reported better-than-expected payroll numbers. It's been nearly two months since the index has enjoyed such gains, and while some companies like Pfizer (NYS: PFE) still had to contend with falling revenues and lower profits, there were plenty of others that were having a much better day than the Dow.
OCZ Technology (NAS: OCZ)
Radian Group (NYS: RDN)
Research In Motion (NAS: RIMM)
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.
Solid as a rock?
Call it taking the medicine needed to cure you. Or, rather, maybe it's rearranging the curtains to make itself look more presentable for a buyer. OCZ Technology rallied yesterday after announcing plans to slash its workforce 28% as it cut production on a number of products to streamline the business. The solid-state-drive specialist said it's dropping 150 products while gutting its discount lines. It will reduce by 80% the value category so that it can focus on high-end -- and presumably high-margin -- products.
But investors should also be wary during its investigation into what went wrong this past quarter. It has yet to file its quarterly report. In a bid to gain share against Seagate Technology (NAS: STX) and Western Digital (NAS: WDC) , it lost control of customer rebate programs, leading to massive losses and causing the CEO to abruptly resign.
While still vulnerable to a buyout -- perhaps its only salvation at this point -- the drive maker could get a bounce. Rumors have been consistent that Seagate wants to buy it, but even if it's true, I don't think it will happen soon. Tell me in the comments box below what you think will be the fate of OCZ Technology.
Back from the dead
Private mortgage insurer Radian Group seems intent on proving me wrong about how well it will survive. Considering Wall Street analysts had expected a loss of $0.52 a share, the $0.11 per share profit amounts to a pretty stunning reversal, even though revenue did come in 49% below the year-ago period.
Radian, like industry peers MGIC Investment (NYS: MTG) and Genworth Financial (NYS: GNW) , has been able to survive the collapse of the housing market and the government's takeover of the mortgage industry by being granted waivers to operate. Unlike its two peers, however, its risk-to-capital ratio dropped to 20.1-to-1, well below the statutory ceiling of 25-to-1. The other two have ratios far above the threshold. MGIC has said its ratios could go to 40-to-1 or even higher!
My concerns for the insurers stem from the relationship between the falling delinquencies they're reporting and the way they're achieving them through loan modifications. Mods tend to have high rates of re-default, and with the large numbers of homes in foreclosure or preparing to enter foreclosure, there will be continued pressure on prices -- meaning even more homeowners could be pushed to the brink. The insurers will be paying out when those defaults hit, and Radian's better ratios might not look so good in the near future.
You know your company is in trouble if the mere announcement that telecoms are testing your operating system is enough to send your stock soaring. BlackBerry maker Research In Motion was pushed higher after news that 50 telecoms are now testing the BlackBerry 10. When your brand has suffered the greatest loss of value this year and you've gone all-in on a new OS as being your last, best hope for survival, such news is welcome indeed.
Yet as diminished as its prospects are against Apple (NAS: AAPL) and Samsung, we shouldn't count out RIM just yet. The dominance of iOS and Android has carriers casting about for an alternative to untether their reliance upon the two systems, and the BB10 gives them just such an out.
My underperform rating of RIM on Motley Fool CAPS made in late August is the only thing underperforming at the moment, as the stock has been rallying, rising 17% from the time I weighed in on it compared to virtual breakeven results from the S&P 500. But I'm not sure the RIM rally can last, but let me know in the comments box below why you think this rise in fortunes might be here to stay.
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The article These 3 Stocks Outperformed Even the Dow originally appeared on Fool.com.
Rich Duprey owns shares of Apple, Pfizer, and Seagate Technology. The Motley Fool owns shares of Apple and Western Digital. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.