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's Change

Oclaro (Nasdaq: OCLR  )

****

16.8%

VirnetX Holding (NYSE: VHC  )

*

12.9%

Callon Petroleum (NYSE: CPE  )

***

12.4%

Source: wsj.com.

On a day when the market jumped 128 points, or 1.24%, even a penny stock can look like a market darling, but might not otherwise amount to much.

The devil's in the details
There didn't seem to be any company-specific news to propel optical networking specialist Oclaro to be one of the biggest gainers on the market. But strong growth at peers JDS Uniphase (Nasdaq: JDSU  ) and Finisar (Nasdaq: FNSR  ) shows the underlying potential the segment holds for rapid appreciation in mobile networking. CAPS All-Star naughtyguy presciently picked Oclaro for a rapid rise the day before its stellar performance, saying people just needed to read its financial statements to see the investment possibilities.

There was also no company-specific event to account for Callon Petroleum's move, not even natural gas prices, which fell at most markets last week. The Coast Guard did say there was no evidence of an oil spill in the vicinity of the Mariner Energy oil rig that caught fire last week, bringing back ugly memories of BP's disaster. Callon has shifted virtually all of its capital spending budget to on-shore activities, limiting the effect something like that should have on it, but the last thing anyone in the oil industry needs right now would be another oil rig disaster.

With new management at the helm, CAPS member jjregist said earlier this year it was only a matter of time before Callon started building up a head of steam.

Angels sometimes need safety nets
Following the success of its litigation against Microsoft -- a $200 million settlement that made it VirnetX Holding's first licensee -- the small company took on four more tech companies last month, including Cisco (Nasdaq: CSCO  ) and NEC.

It's also likely that wireless carriers rolling out their 4G networks will need to step up, as every connected device on the network will be required to have a secure domain name, and that's exactly what VirnetX's patented technology does.

So maybe that does make it the next takeout target. Particularly in light of Intel's (Nasdaq: INTC  ) buying McAfee, the opportunity for one of these lawsuit targets to fold the Internet software security specialist into its fold (rather than pay it off) could make a lot of sense.

Over on CAPS, members are almost perfectly divided between VirnetX's stock underperforming and outperforming the market, though member Cruzzr thinks it has a lock on its niche: "Has cornered the market on smart phone security, and is licensing it to the big guns in the industry!!!!"

You can be secure in the knowledge that your opinion on VirnetX Holding's CAPS page will help determine which way this software leader's star rating heads.

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 reentry, or off to infinity and beyond.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Intel and Microsoft are Motley Fool Inside Value choices. The Fool has written calls (Bull Call Spread) on Cisco Systems. The Fool owns shares of and has written puts on Intel. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. 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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