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

Silicon Image (Nasdaq: SIMG  ) *** 35.8%
RF Micro Devices (Nasdaq: RFMD  ) **** 15.2%
F5 Networks (Nasdaq: FFIV  ) ** 14.7%

From peak to trough, the market swung 186 points, though it ended the day down only 43, or less than a half-percent. But stocks that went significantly in the opposite direction are big deals.

The devil's in the details
While sometimes stocks rise and fall for no reason, these three big movers all had earnings driving their shares higher. Silicon Image, for example, a chip maker focused on the storage, distribution, and presentation of high-definition content in consumer electronics, personal computing, and even mobile devices, reported revenues that jumped 20% ahead of analyst forecasts, generating earnings three times greater than predicted.

As global shipments of digital TVs rise, the connectivity provided by Silicon Image's chips is catching a wave of attachment, marking the second straight quarter that it rocked Wall Street's forecasts. It just might be stealing market share, too, since Trident Microsystems (Nasdaq: TRID  ) can't seem to find the same traction as Silicon Image.

Investors who've been tracking Dolby Labs know that the market for digital televisions has been a key component for the growth of its sound technology, particularly in Asia. The coming movement in China, which will soon migrate to a digital signal, will be a huge wave taking sales higher, easily allowing Silicon Image to ride it higher, too.

The country accounts for only 6% of sales right now, but a quarter of its property and equipment is located there. It should be able to easily translate that into further sales. Japan was an important lever for this quarter's growth, as revenues there rose 38%, while Asia in general accounts for almost three-quarters of the total.

Highly rated CAPS All-Star TMFZahrim says you can't escape the technology Silicon Image includes in today's consumer electronics:

I dare you to find a TV, a Blu-ray player, or some other set-top box in your favorite electronics store that doesn't feature this technology today, and Silicon Image is also looking to extend its reach into mobile devices with the new MHL standard. Like it or not, Silicon Image is doing alright.

Making it to the big time
Another chip maker getting a boost from better-than-expected earnings is RF Micro Devices. They weren't of the same blowout character as Silicon Image, but it did beat sales and profit estimates and perhaps more importantly, said third-quarter results would be higher than what analysts were anticipating. Beat-and-raise is a potent combination these days, and is putting RF Micro ahead of rivals TriQuint (Nasdaq: TQNT  ) and Skyworks Solutions (Nasdaq: SWKS  ) .

The performance underscores the confidence the CAPS community has placed in the chip maker, with 94% of the more than 700 members rating RF Micro believing it will continue chalking up market-beating results. Keep on top of what it's doing by adding it to your My Watchlist page, where all the Foolish news and analysis will be compiled in one convenient place for you.

Optimus prime
If nothing else this earnings season, we're seeing the tech sector post better results, so it's not so surprising that network optimization leader F5 Networks scored a hit, too. It's been on a tear all year long yet analysts were still saying it was undervalued when compared with peers Riverbed Technology and Acme Packet (Nasdaq: APKT  ) .

That discount might be disappearing after the stock's performance yesterday, and CAPS member L943973T sees some technical signs that may point to a drop, but almost 90% of the CAPS members rating F5 see it outperforming the broad market averages.

Tell us on the F5 Networks CAPS page whether it will still be able to optimize its own performance in the future.

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.

Acme Packet is a Motley Fool Rule Breakers selection. Dolby Laboratories is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Fool contributor Rich Duprey currently does not own any stocks as you can see here.


Read/Post Comments (1) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 29, 2010, at 4:38 PM, yaldezian wrote:

    To say that RF Micro is better than SWKS and TQNT is foolishness at its highest. Fools who don't do their homework on the space will follow your advice and miss the great opportunity offered by the other 2. Looking at PE, and results I would hold the other SWKS, pare back but not sell out my RFMD and buy buy buy TQNT!

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