Whoa! What Just Happened to These 3 Stocks?
With only a third or fewer of all the stocks on the NYSE and Nasdaq exchanges managing to record any gains on Friday as the Dow Jones Industrial Average dropped 158 points, any company that was able to put together double-digit gains is notable.
The three following stocks managed to do just that, 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 a roll
Many Chinese companies have a well-earned bad reputation for doing business in ways that benefit management and insiders but not common shareholders. While investors were already skeptical about Yongye International and its business practices, it joined that club when its board of directors and CEO cobbled together a deal to take the fertilizer specialist private for $6.60 per share, a significant discount to its $7.60-per-share book value.
With the Chinese central bank willing to fork over $1 billion to help Chinese operations leave U.S. markets, it doesn't seem unnatural that Yongye's insiders would try to take advantage of that largesse at the expense of the long-suffering investors who backed it through its tribulations. Friday's surge was fueled by the bank's decision to finance the proposal.
Morgan Stanley was the one that proposed the going-private deal, no doubt helping its own $50 million bet on the stock when short sellers had targeted the company. It got a seat on the board for injecting that cash into the business and also received preferred stock valued at $8.80 per share, so we know why they were gung ho about getting the Chinese people to pay for Yongye's business.
That Yongye's stock continues to trade below the buyout offer, let alone its book value, suggests there are still deep concerns about the company, ones that have plagued Yongye and chief rival China Green Agriculture for some time. I don't expect common shareholders to fare any better by the time the deal closes.
Getting while the getting's good
More of that Chinese government largesse was responsible for sending LDK Solar higher as favored solar shops such as Trina Solar and Suntech Power could get a boost from efforts at industry consolidation and manufacturing artificial demand for household electronics, vehicles, and solar energy for rural use.
While the markets reacted positively to the developments, in reality it shows just how poor a shape the industry is in. Only by having the government incentivize the merger of companies can they hope to prosper, and only by funneling cash to certain sectors will demand grow. Doesn't seem like a prescription for sustained growth, and as occurred with solar tariffs, eventually all such spigots get turned off. Look for LDK to retrace any ground it's made up.
Sounding like President Nixon after losing the California governor's race in 1962, when he told the media "You won't have Nixon to kick around anymore," the CEO of magicJack VocalTec resigned on Friday, saying, "Short sellers aren't going to have the excuse of Dan Borislow anymore."
After peaking at around $28 a share, the stock of the VoIP provider is still off 36% despite its rally the other day. Short sellers are still attacking the stock, as the latest numbers from two weeks ago show they had increased to almost 5.8 million shares, or nearly half the company's float, representing a short interest ratio of 22 days to cover. The Motley Fool believes anything over seven days is a lot. Ne'er-do-well rival Vonage , by comparison, has sold nearly 7 million shares short, or 4% of its float, representing just four days to cover.
Of course, positive developments such as the resignation of the CEO, since he was the lightning rod for much of the criticism at the company, presents the opportunity for a short squeeze. There could be more shorts covering their positions on Monday, so we may yet see more of a jump in magicJack's stock.
With the swelling of the global middle class, energy consumption will skyrocket over the next few decades, and long-term investors know that you want exposure to this space now. We've picked one incredible natural gas company that presents a rare "double-play" investment opportunity today. We're calling it The One Energy Stock You Must Own Before 2014, and you can uncover it today, totally free, in our premium research report. Click here to read more.
The article Whoa! What Just Happened to These 3 Stocks? originally appeared on Fool.com.Rich Duprey and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.