Why Insmed, Plug Power, and Ballard Power Systems Are Today's 3 Best Stocks

Make it four straight days of gains for the broad-based S&P 500 , which rallied strongly despite mixed economic data.

No economic event was more important than today's Federal Open Market Committee meeting. As expected, the FOMC left the federal funds rate unchanged at 0.25%, but the FOMC once again chose to taper its monthly economic stimulus known as QE3 by an additional $10 billion, to $35 billion. Reducing QE3 is a double-edged sword for the Fed. On one hand, it signals that the economy is getting stronger and isn't in need of economic stimulus to grow. But on the other, it removes essentially free money from being pumped into the economy on a monthly basis that has been responsible for housing industry stabilization and lower long-term lending rates.

More telling, however, was the FOMC's interest-rate forecasts. With the majority of FOMC members now expecting a quicker drop in unemployment and tamer inflation than expected, the end-of-year median interest rate expectations for 2015 and 2016 rose to 1.125% and 2.5%, respectively. Yet, the projection for the long-term median federal funds rate fell to 3.75% from 4%, possibly signaling that U.S. economic growth could weaken beyond 2016.

Also disappointing housing-sector optimists today was the weekly release of the Mortgage Bankers Association's loan originations data. After surging more than 10% last week, mortgage originations dipped by more than 9% this week, which is a bit worrisome considering that interest rates are approaching a one-year low.

Still, investors latched onto the FOMC's bullish outlook through 2016, and helped push the S&P 500 higher by 14.99 points (0.77%) to close at 1,956.98, another record closing high.

Source: Ben Dalton, Flickr.

If you thought today's gains in the market were impressive considering the amount of conflicting data we received, then you'll absolutely love the 42.6% move higher in shares of clinical-stage biopharmaceutical company Insmed , which soared after the Food and Drug Administration granted its lead investigational drug Arikayce the breakthrough designation following phase 2 studies for treatment-resistant nontuberculous mycobacterial infection. A breakthrough designation could allow Insmed to bring its inhaled drug to market without having to run a costly and time-consuming phase 3 study, so this is a potentially key win for the company.

However, I'd also caution that, while its phase 2 secondary endpoints, which focused on negative NTM cultures after 12 and 24 weeks, did favor Arikayce compared to the control arm, it still failed to meet its primary endpoint of a statistically significant change in mycobacterial density using a seven-point scale over 12 weeks, and resulted in far more adverse events than the control group. I believe these are all reasons for investors to keep their distance from Insmed for the time being.

Source: Plug Power.

The other two big gainers for the day came from the fuel-cell systems sector with Plug Power and Ballard Power Systems gaining 17.7% and 16.6%, respectively. What's interesting about Plug Power is that it hasn't had any news-specific events that would directly explain its move higher today. But, Plug Power is heavily short-sold, and it looks quite possible that today's move higher, with 35 million shares short, could be exacerbated by short covering.

While today's move represents a nice surprise for optimists, it remains to be seen if this story stock can actually translate into long-term success. Plug Power has rallied strongly this year following an order of more than 1,700 fuel-cell systems by Wal-Mart to be used to power forklifts in six of its U.S. warehouses. Yet, investors might be wise to stick to the sidelines to determine if there's any consistency to its orders before chasing shares any higher.

Ballard Power, on the other hand, received a buy rating from research firm Jennings Capital with a price target initiated at $4, or 12% implied upside based on yesterday's close. I'm a little less leery of Ballard's move higher as it has fewer shares held short and a more consistent order history, but I'm still inclined to stick to the sidelines until I witness healthy profitability from Ballard Power, which is likely a few years off.

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The article Why Insmed, Plug Power, and Ballard Power Systems Are Today's 3 Best Stocks originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. 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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