These Stocks Jumped Into the Land of Make Believe
With the Fed hinting that it will keep printing money to infinity and beyond, and Europe Central Bank head Mario Draghi yesterday calling for everyone to believe he'll save the euro, the markets decided to listen to the jawboning, and the Dow jumped points in response. Some stocks managed to do even better, running up by double-digit percentages on Thursday.
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.
Yesterday's % Chg.
CAPS Rating (out of 5)
|Akamai (NAS: AKAM)|
|Western Digital (NYS: WDC)|
|Sprint (NYS: S)|
While the markets engaged in a willing suspension of disbelief that this time everything in Europe will turn out right, the companies above did what the ECB is going to have to do, and that's put up or shut up. Their earnings carried them higher, and put to shame analyst projections.
Content-delivery network specialist Akamai, for example, was able to speed up its own growth, as cloud computing demand gave a boost to its revenues, which rose almost 4% to $331 million, as well as adjusted profits, which came in at $0.43 a share, well ahead of analyst expectations of just $0.37 a share.
The broad move to cloud computing by enterprise-level businesses, coupled with consumer-based mobile-computing platform growth, is giving Akamai the ability to push forward in a difficult economy, even as the competition falters. The day before, Level 3 Communications (NAS: LVLT) reported bigger losses than expected.
While much of Level 3's issues were contained to its U.K. business, as Europe's looming economic tsunami impacted results, it's still trying to swallow Global Crossing, which it acquired last year and that's hampering performance. Akamai's own acquisition of Cotendo has gone much more smoothly. With Limelight Networks reporting next week, we'll see which way the industry breaks, but I'm guessing it will be more like Akamai and less like Level 3, as Limelight gets around 70% of its revenues from the U.S., just as Akamai does. Level 3 derives less than 60% domestically. With more international exposure, Level 3 was bound to be weaker.
Analysts agree, however, that this looks only like the beginning for Akamai, because of product cycles and the growth of the Internet. Over 3,200 CAPS members have weighed in on the CDN provider and 95% agree that we're still in early innings. You can deliver your thoughts lickety-split by heading over to the Akamai CAPS page.
Remember this day
Storage specialist Western Digital also came in ahead of expectations, as it fully recovered from last year's flooding in Thailand. While rival Seagate Technology (NYS: STX) will report its results next week, it gave a sneak preview earlier this month that perhaps had WD investors expecting worse news. It lowered its revenues and profit forecasts for the quarter saying that the post-flooding environment was leading to lower shipments.
Western Digital turned that gloomy outlook on its head, and gave its shares -- and those of Seagate -- a jolt. Revenues of $4.75 billion came in half a million dollars higher than what analysts anticipated, and nearly double the year-ago, flood-ravaged period. Profits also came in 35% higher than what the Street was saying.
CAPS member jwray01 ties the forces pushing Akamai higher to WD, noting the "Increase in hard drives in the cloud will be way larger than the slight decline in PC sales." It's a fundamental shift in the way we work, and the currents certainly appear to be taking Western Digital in that direction, but a declining PC market could hold back all storage companies. Give us your assessment of how it will play out in the comments section below.
Dialing up growth
They've been mocked for giving away the store to Apple, but with 1.5 million iPhones sold in the quarter, the big bet seems to be paying off for wireless carrier Sprint.
To get the iPhone for its customers Sprint guaranteed it would sell $15 billion worth of iPhones in four years. CEO Dan Hesse has long said that much of Sprint's previous poor performance could be summed up in two words: "no iPhone." He admitted that the Apple contract was expensive, but was still worth it and, so far, it seems to be paying off. Much like its recent iPhone-charged quarters, it reported higher revenues and wider losses, but this time out, it notched its best-ever customer churn numbers. With 40% of iPhone sales going to new customers, Sprint is seeing a lot less turnover.
Despite apparent sales sluggishness elsewhere ahead of the release of the iPhone 5 this fall, Sprint seems to be doing well and, when the new model hits the market, Sprint won't have to be playing catch-up quite so hard, or as deezpix puts it, it's "turning its huge iphone investment into a cash cow."
The question is, can Sprint maintain this pace? With shares surging 20%, is now the time to hang up on the wireless carrier? Tell me in the comments section below or on the Sprint CAPS page whether you should pocket the gains here.
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The article These Stocks Jumped Into the Land of Make Believe originally appeared on Fool.com.Fool contributor Rich Duprey owns shares of Seagate Technology and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple and Western Digital. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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