What Just Happened to My Stock?
It could've been worse, but then again it could've been a whole lot better. Still, the markets notched another big gain, but just because your stock strapped on a rocket pack and went even higher resist the urge to high-five everyone in the cubicles next to you. 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)
|Flotek Industries (NYS: FTK)||***||26.8%|
|Zale (NYS: ZLC)||*||23.3%|
|Stillwater Mining (NYS: SWC)||****||13.6%|
With the Dow Jones Industrial Average (INDEX: ^DJI) soaring 147 points yesterday, or 1.3%, stocks that went appreciably higher are pretty big deals.
Oil-services firm and "fracking" specialist Flotek has been laboring under lower demand pressures as the country slides back into a recession, pressures that have pushed Halliburton (NYS: HAL) 40% from its highs and Schlumberger 34%. Flotek itself was knocked for a loop.
Yet last month I pointed out that it had expanding international opportunities, such as in Russia, and faced a better pricing environment, higher drilling activity, and a recovery in demand for specialty oilfield products. Flotek's strong second-quarter results led to bigger market-share gains.
Those drivers became apparent after Flotek updated financial and operational data that showed revenues of $25 million in August, up from $23 million in July, while cash on its balance sheet was growing, too. The worries of last month were forgotten by investors who bid up shares yesterday.
The CAPS community remains supportive, with 95% of those rating Flotek saying it will outperform the market. The anti-fracking debate holds no concerns for them, but tell us on the Flotek Industries CAPS page whether you think it can drill down for further gains, and then add the stock to your watchlist.
A light in the darkness
Investors are putting a lot of stock in diamond merchant Zale's CFO, who says the company's turnaround is on track. They lit a fire under the shares after he said the company was "trending in the right direction." He pointed to celebrity partnerships, such as with Vera Wang and Jessica Simpson, and same-store sales are also apparently on the rise.
Last quarter, the jeweler reported that revenues jumped 9% and comps were up nearly 10%, though it still recorded wider losses than in the year-ago period. Luxury stocks like Tiffany and Coach (NYS: COH) are rebounding as well, so there may be something to Zale's turnaround story, even though the executive really didn't say more than was revealed in the annual financial report filed with the SEC last week. Maybe giving verbal form to the written word made it more concrete for investors.
Still, I marked the jeweler to underperform the markets on CAPS because it seemed such an arbitrary reason for the stock to rise. The economy is racing headlong into another recession, despite these back-to-back days of triple-digit increases in the Dow. Add Zale to your watchlist and then mine the Zale CAPS page to see what others think.
A betting man
Stillwater Mining delighted investors as it chose not to proceed with a $300 million junk-bond sale that was originally scheduled to be used to fund its acquisition of Peregrine Metals, a gold and silver miner that the markets thought Stillwater paid too much for. Management said the collapse of the capital markets made it an undesirable transaction, and besides, it had plenty of money on hand to pay for it anyway.
So why were they willing to dip deep into the junk-bond well if it wasn't necessary? The sudden reversal may be a positive development for the financial health of the company, but it does cast a harsh light on management.
But Stillwater remains the largest platinum group metals miner outside South Africa or Russia, while North American Palladium (NYS: PAL) is Canada's largest palladium miner. Both have taken shots as commodity prices fall, with Stillwater dropping 56% over the past three months and NAP down 34%.
CAPS All-Stars like the prospects of platinum's rise, and bsharvy is looking for the soft market in pricing to come to a halt: "Platinum historically cheap relative to gold; Russian palladium liquidation near the end."
Add Stillwater to the Fool's free portfolio tracker, and then let us know on the Stillwater Mining CAPS page whether it will be able to live up to expectations.
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 North American Palladium, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Schlumberger and Coach. Motley Fool newsletter services have recommended buying shares of Coach. 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.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.