Whoa! What Just Happened to My Stock?

Resist the urge to high-five everyone in the cubicles next to you. Your stock may have just strapped on a rocket pack and taken off for the moon, but 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.

Stock

CAPS Rating
(out of 5)

Friday Change

Netezza (NYSE: NZ  )

**

33.2%

3Par (NYSE: PAR  )

**

24.7%

SunPower (Nasdaq: SPWRA  )

***

11.9%

Source: wsj.com.

The devil's in the details
On a day when the market jumped 164 points, or 1.65%, even a penny stock can look like a market darling -- even if it might not otherwise amount to much.

Virtualization specialist 3Par is caught in the happy circumstance of a bidding war being waged between Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) . In less than a month, the company's value has tripled, as the two tech giants ratchet up their offers. HP's $2 billion bid is winning right now, but as Dell mulls whether to raise the stakes again, 3Par investors look like they've just hit a hole in one.

That could explain why Netezza's perked up, too. Data storage is the sweet spot for the tech industry, and with companies sitting on piles of cash that they're neither investing nor using to hire employees, M&A activity is the next best expenditure. Increasing demand for its data-warehouse technology caused Netezza's profits to quadruple last quarter, driving the company to raise guidance for the rest of the year. The market doubtlessly expects Netezza to occupy some acquirer's short list of potential buys.

Lighter than air
Deep cuts to solar tariffs in Germany, Spain, and Italy created a bit of a panic in the industry, as investors (correctly) wondered whether there would be sufficient demand for the alt-energy source without a financial incentive to buy them. However, the absence of subsidies has also put many solar markets on a more level playing field. Without governments dictating where to build, demand for solar installations should be less uneven. In the long run, that will be better for solar plays like SunPower, Trina Solar (NYSE: TSL  ) , and First Solar (Nasdaq: FSLR  ) .

Right now, demand is looking strong for next year. Analysts have improved their outlook for the industry now that Trina has reported results; the company expects to see rising demand into 2011. Investors had feared that the big revenue jumps at many solar shops were due to customers pulling orders forward to meet tariff expiration deadlines, as happened with autos and homes. But now, demand seems more sustained.

That explained SunPower's big jump on Friday, as two analysts declared the stock undervalued. Even after the jump, the PV panel maker's stock is down by more than half over the past year. But thanks to its ability to generate free cash flow, SunPower now trades for less than its tangible assets.

Although additional markets are expected to cut tariffs in the coming months, Wall Street still expects SunPower to shine. The company just snared several contracts with the U.S. government, respresenting a minimum of 20 megawatts of new projects. The U.S. solar market is growing at a faster pace than the rest of the world, and some think we might become the largest market for solar technology by 2014.

Some 90% of the CAPS members who rated its stock believe the solar specialist will outperform the broad market averages -- and I'm one of them. Let us know on the SunPower CAPS page whether its soaring performance was just a brief moment in the sun.

Going into orbit
Just because your stock has taken to the stratosphere doesn't mean it won't lose altitude. Markets are known for overreacting. A closer look at what's happened to your stock can give you an edge over other investors who merely follow the market's lead.

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.

First Solar is a Motley Fool Rule Breakers recommendation. Quality Systems is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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