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)
|
Thursday's Change
|
| Applied Energetics (Nasdaq: AERG ) |
*
|
19.4%
|
| DG FastChannel (Nasdaq: DGIT ) |
****
|
18.2%
|
| Hyperdynamics (NYSE: HDY ) |
*
|
16.2%
|
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
There wasn't much to account for defense contractor Applied Energetics stock move other than a recovery from a tumble the day before. With a very high percentage of shares short -- its days to cover ratio is over 19 -- it can trigger a squeeze of short-sellers. Even on Wednesday when the stock fell 17%, there was no news that should have moved it. It wasn't a sector shock either, as other defense contractors like Raytheon (NYSE: RTN ) , Northrup Grumman (NYSE: NOC ) , and Boeing (NYSE: BA ) hardly budged at all.
The CAPS community remains skeptical of Applied Energetics, however, with more than a third of those rating it having a hard time believing it will be able to outperform the broad market averages. Let us know on the Applied Energetics CAPS page whether the defense contractor can apply its technological skill to ultimately advance.
Making it to the big time
Internet marketing and advertising provider DG FastChannel, on the other hand, reported earnings that far surpassed analyst expectations for both revenues and earnings as demand for high-definition content moved customers. That's just what it was predicting a few months ago when its shares took a hit due to a seasonal slowdown and it said to expect a rebound. The surprising thing is, it was forecasting the rebound to come in the fourth quarter, not the third, so the unexpected uptake apparently even caught management at unawares.
Undoubtedly there was concern regarding the stiff competition it faces from Ascent Media at the same time it's switching from a wholesale to full-service business model. But CAPS member moneymcbags dismisses the potential disruption this rival would cause.
The noise with the Ascent Media relationship last Q was certainly enough to warrant some rethinking of DGIT's business, but not enough for the 40% collapse that DGIT saw after a decent earnings number. Since then, Money McBags has written about DGIT several times saying a return to the mid $20s is pretty much a no brainer.
The performance underscores the confidence the CAPS community has placed in the marketer where 96% of the more than 200 members rating DG FastChannel believe 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.
Hyperventilating over oil
Oil explorer Hyperdynamics got a big vote of confidence from investment management firm BlackRock (NYSE: BLK ) , which took a 12% stake in the company through a $30 million, 15-million share private placement. Hyperdynamics owns three-quarters of a 9,600-square-mile concession off the coast of Guinea and will now have the financial resources to begin a drilling program late next year.
Investors have pushed back at the notion that Hyperdynamics was a fly-by-night operation or that its relationship with the Republic of Guinea was risky because of the potential for political unrest there. This infusion of cash is a bit of vindication for those who've held on through some rocky periods and perhaps points to a time when they might just get bought out or taken over if their explorations prove fruitful.
Highly rated CAPS All-Star member jimbendt believes Hyperdynamics is in the right place with the right people running the ship, no doubt echoing the belief of the 76% of CAPS members who've rated it to outperform. Tell us on the Hyperdynamics CAPS page whether this oil exploration specialist will be able to strike it rich.
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.
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