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)

Wednesday's Change

Edwards Lifesciences (Nasdaq: EW  )

**

13.2%

SunPower (Nasdaq: SPWRA  )

***

10.3%

Vical (Nasdaq: VICL  )

***

9.5%

On a day when the market was down 1% at one point during the day yesterday even a high-flying blue chip can look like a volatile penny stock.

And volatility was at play with biopharmaceutical specialist Vical, whose stock had seen a third of its value sliced from it the day before when a drug it was developing with sanofi-aventis (NYSE: SNY  ) to restore blood vessel growth in damaged limbs was reported as being no better than a placebo in late-stage tests. With no products on the market, Vical is now moving to raise money by selling more shares to the public, though details on how many and how much it hoped to raise were not yet available. Look for that bounce to come back down

The devil's in the details
It was positive test data that spurred Edwards Lifesciences higher yesterday, a result CAPS member Health careGuy expected when he marked the medical device maker to outperform the broad market averages.

Test results of Edwards' Sapien heart valve were reported in The New England Journal of Medicine, which said they should become the "standard of care" for certain patients who are unable to undergo surgery. The Sapien is guided to the heart through the femoral artery in the leg. While the development is certainly positive, it still has a ways to go yet before getting FDA approval and another key testing milestone will be coming up next year. While analysts expect a positive outcome there as well, a lot of the value may have already been built into Edwards' stock.

Sunny days are here again
After a long trip down, solar special SunPower has seen the clouds break and over the past month its stock has soared over 37% on a series of upbeat news, from analyst upgrades to potentially lucrative project wins. Only JA Solar (Nasdaq: JASO  ) , up 43%, has performed better.

The latest gains came as a result of scoring a deal to build and operate a 10-megawatt solar park in Delaware that will feature SunPower's sun-tracking technology. The panels follow the sun's movement during the day, which is said to increase sunlight capture by 25% over more conventional fixed-tilt systems while at the same time significantly reducing the amount of land needed for its construction.

Solar power is exhibiting sustained demand these days, despite the loss of government subsidies around the world. While some might be hoping that some countries backtrack on the severity of the cuts, investors need to look at their stocks as if those reductions will be as large as reported.

Last month SunPower reported second-quarter earnings that fell short on analyst revenue expectations (though they were up over the year-ago period) but handily beat profit forecasts. It shares, though, have lagged peers like Trina Solar (NYSE: TSL  ) and Solarfun Power (Nasdaq: SOLF  ) , which are up 56% and 59%, respectively, over the past year. Even after the big jump in value SunPower has seen this past month, the stock is still down by more than 50%. That's what helped the analysts previously suggest it was undervalued when they upgraded its prospects.

Earlier this month highly rated CAPS All-Star member nonzerosum figured with the growth SunPower was beginning to show along with its financial position it was ready to move ahead.

Solar is at an inflection point because the price per watt is now economical at the margins (NOT in average city USA!). See my profile and website for my paper on solar. SPWRA is growing at 28%, has gross margin around 23%, current ratio is ok, A/R is not great but is inline with revenue growth. Some risk of dilution for capex, but that's the trade-off when you're growing at these rates.

You can shine some light on the SunPower CAPS page whether you agree that this is just a momentary flash in the pan that will soon fizzle out. If you want to stay on top of what's happening with this solar shop, add it to your My Watchlist page where all the Foolish news and analysis about this stock is aggregated for you.

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.

Try any of our Foolish newsletter services free for 30 days. 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.

Fool contributor Rich Duprey currently does not own any stocks as you can see here. The Motley Fool has a disclosure policy.


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