Whoa! My Stock Just Took Off!
The markets fell again yesterday by triple-digit amounts, but resist the urge to high-five everyone in the cubicles next to you just because your stock strapped on a rocket pack. Smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.
Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.
CAPS Rating(out of 5)
|Temple-Inland (NYS: TIN)|
|Move (NAS: MOVE)|
|8x8 (NAS: EGHT)|
With the Dow Jones (INDEX: ^DJI) index falling another 101 points yesterday, or almost 1%, stocks that went appreciably higher are pretty big deals.
As strong as wet paper
No doubt, corrugated-packaging maker Temple-Inland is thinking it had better get while the gettin's good, which is why it accepted the enhanced $32-per-share offer International Paper (NYS: IP) just made.
After rejecting the original $30.60 bid as too low and adopting a "poison pill" defense to protect against a takeover, Temple-Inland was slammed with a $1 billion lawsuit alleging that it contributed to the failure of Guaranty Bank by "fraudulently looting" the financial institution. As if that wasn't enough to spook investors into thinking the IP deal might not go through, regulators started flexing their muscles and have unreasonably opposed AT&T's takeover of T-Mobile.
With Rock-Tenn having bought Smurfit-Stone, it might seem consolidation is an industry imperative, but regulators might worry about a surfeit of competition that will lead to high prices. That was their justification for stepping on the telecom merger.
So when IP sweetened its offer of the "unacceptably low" bid by less than 5%, management jumped at the chance to get out of Dodge while they still could. No doubt, the 90% of CAPS members rating Temple-Inland to outperform the market were as relieved as everyone else that IP showed it was committed to the purchase, but Onigato thought the paper-products company could still stand on its own.
Yes there is a lawsuit regarding the bank, and yes there is a major slump in building products sales right now, but TIN has weathered frivolous lawsuits before, and building supplies will recover again. Eventually. It may take time, but the fundamentals of this company are decent, and the dividend is a perk.
Tell us in the comments section below or on the Temple-Inland CAPS page if you think management knows how to find its way out of a paper bag.
Higher and higher
You have to imagine the management folks at Move sitting on their cardboard boxes as they jealously eyeZillow (NYS: Z) . The Realtor.com parent has a well-known brand and should be a prime destination for house hunters, regardless of the condition of the overall housing market, yet there the stock sits, trading for less than $2 a stub while the upstart competitor has a highly touted IPO and its shares go for more than $35 each.
Like the owner of a postage stamp-sized lot erecting marble statuary so that his property ridiculously resembles the Hearst Castle, Move wants its stock to imitate its high-flying competitor by effecting a 1-for-4 reverse split. Approved by shareholders at its annual meeting in June, Move says it also wants to buy back $25 million worth of stock. Unfortunately for investors, the primary reason it's performing such gymnastics is to offset the heavy dilution that comes from doling out generous stock options.
But CAPS member hriggio thinks the Internet-based infatuation will wear off and the value inherent in Move's Realtor property will be realized: "I [think] that Zillow and Trulia will [have] realized that [their] basic beginning model was flawed, [Realtors] who are not that interested in working with internet leads, will realize that accurate info from a consumer stand point is more important, and consumer/user end satisfaction is more important, and that in itself [will] realign Realtor.com -- who has a 12 year head start."
Add Move to your watchlist, and then move over to the Move CAPS page to let us know whether you think its artificial machinations will pay off.
A betting man
There are plenty of fundamental reasons to expect up-and-coming VoIP provider 8x8 to continue driving higher. Indeed, it has its sights set on going from being a me-too Vonagewannabe to taking on cloud-based communications and doing for the niche what Cisco did for wired telephony.
Running with the established players like Savvis (NAS: SVVS) might be a new challenge, but recent quarterly earnings suggest that it should have no problem serving enterprise-class customers as well as it has small- and medium-size business. CAPS member ColoredInvestor doesn't see anything standing in its path either: "8x8 is a great company, if not for the economic situations we are in [it] would definitely be reaching for the $10 mark. The company has gained value on a yearly basis and with the plans management has put into place I see no reason for this trend to stop now."
Let us know on the 8x8 CAPS page whether you think it can see its way to higher growth.
Going into orbit
That's why it pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock's headed for re-entry or off to infinity and beyond.
At the time this article was published Fool contributor Rich Duprey owns shares of Cisco Systems, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Rock-Tenn and Cisco Systems and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems and AT&T. 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.
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