Whoa! What Just Happened to My Stock?
Editor's note: An earlier version of this article mixed up Affymax with Affymetrix. We regret the error.
The markets recoiled as it became apparent there was not going to be some grand compromise for a European bailout. So just because your stock strapped on a rocket pack and went 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)
|Affymax (NAS: AFFY)|
|E-Commerce China Dangdang (NAS: DANG)|
|Central European Distribution (NAS: CEDC)|
With the markets tumbling 199 points on Thursday, or 1.6%, stocks that went appreciably higher are pretty big deals.
Shining a light on growth
Amgen (NAS: AMGN) rules the roost in anemia therapy with Epogen, but others, such as Rockwell Medical Technology (NAS: RMTI) , are also looking to grab a large slice of the pie. Now we can add Affymax after an FDA advisory panel recommended 15-1 that its investigational anemia drug peginesatide, formerly known as Hematide, be approved, overcoming a late-stage clinical study last year showing a higher rate of death and stroke in patients. While standard boilerplate requires notice, the regulatory agency is under no obligation to follow the panel's recommendation, it's also true that it usually does.
The FDA has until March 27 to make a decision, and if approved, peginesatide will not only be Affymax's first drug to make it to market, but will be the first drug ever to assault the ramparts of Amgen's Epogen hegemony.
While more than three-quarters of the CAPS members rating Affymax thought it could outperform the market indexes, the low two-star rating they assigned it suggested they believed it was a risky bet and there were better places for your money. Add Affymax to your watchlist to see whether the FDA goes along with its advisory panel's recommendation.
Turn the page
Maybe E-Commerce China Dangdang is not taking a page from Amazon.com's (NAS: AMZN) playbook, but it does read like a close copy.
Having established its digital content division last year, Dangdang will be introducing a branded e-reader sometime in the first quarter of 2012. However, the better comparison is that it probably wants to challenge Shanda Interactive (NAS: SNDA) , who's Bamboo e-reader has been out for sometime. While it will also be investing more money in warehouses and logistical support for its primary operations, as the Fool's Rick Munarriz recently pointed out, margins have been slashed for the bookseller, generating a $0.19 per share loss. Digital delivery could improve margins for the e-tailer, while the app store for both the iOS and Android platforms it plans to introduce later this month could bolster operations further.
Back in June, I marked the e-commerce platform to underperform the market on CAPS because it seemed to be just another Chinese me-too company. Moreover, Dangdang is running into a situation where its costs are rising at a faster pace than sales. Revenues jumped 50% last quarter, but the cost of them was up 73%. I don't see these latest moves doing enough to help Dangdang grow.
Let us know on the E-Commerce China Dangdang CAPS page whether it can read the writing on the virtual wall, and then add the stock to the Fool's free portfolio tracker to keep track of its progress.
Who's got short shorts?
Because the latest offer from Russian Standard to buy an additional 20% of Central European Distribution on top of the 10% it already owns would come about as a result of new shares being issued, the Russian spirits distributor would end up owning about 25% of its Polish counterpart. That's certainly still a significant investment, and it indicates someone still sees a lot of value in the Vodka distributor.
While CED is one of the world's largest vodka producers, it's having difficulty selling in the primary Polish and Russian markets. Of course, if you can't sell vodka there, you have bigger issues, which its share price certainly reflects. Compare the results of Brown-Forman, for example, which recently reported Finlandia vodka sales were up 9% over the past six months, primarily because of case volume growth in those two markets.
With 97% of the CAPS All-Stars rating CED believing it will outperform the broad indexes, it seems the new investments being made in it will become the standard of care for its future. Tell me in the comments section below, or on the Central European Distribution CAPS page, if you think this means the company is out of the woods, then put it on your watchlist to keep track of its progress.
Going into orbit
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 reentry, or off to infinity and beyond.
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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