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.
CAPS Rating (out of 5)
|Zale (NYSE: ZLC )
|ITT (NYSE: ITT )
|NVIDIA (Nasdaq: NVDA )
Reversing several days of steady declines, the bulls took charge in the market yesterday, jumping nearly a full percentage point to get things going again. Yet stocks that went up significantly more are even bigger deals.
The devil's in the details
Just last week we were wondering what the heck was happening to Zale's stock because it fell sharply one day. Traders were supposedly betting that the diamond retailer wouldn't be able to maintain the momentum that led it to triple in value over the past six months. Without the lighter business model of a Blue Nile or the luxury cachet of Tiffany (NYSE: TIF ) , the argument that Zale couldn't keep up the torrid growth seemed to make sense.
That was certainly the thinking of CAPS member baselineace, who noted the negative general consensus.
After working in the jewelry industry for 10 years, I can assure you that NO ONE thinks Zales will make it.
Yet Zale surprised everyone by showing that diamonds are investors' best friend, too. Zale said same-store sales jumped 8.5% in December. Even though Tiffany was only able to generate a 3% increase at its flagship New York store -- a weak showing, according to analysts -- comps were up 10% elsewhere and it did post much higher net sales, too, leading it to raise guidance for the year.
Zale hasn't followed up with any new guidance, but it says its cost-cutting initiatives, the management shake-up, and the focus on selling diamonds has made all the difference.
Although the broader CAPS community tilts slightly negative on Zale's potential, All-Star members lean in its favor, with 54% expecting it to beat the market. That's not exactly a ringing endorsement, but you can tell us what you think on the Zale CAPS page.
Making it to the big time
One plus three equals really big share gains for diversified industrialist ITT, which decided to split itself into three companies to try to mollify investor concerns that its defense business was holding it back.
Pentagon budget cuts are a threat to ITT, Boeing (NYSE: BA ) , Lockheed Martin, and other contractors, which will be competing for slices of a much smaller pie. The rest of the businesses should be able to grow stronger as commercial and industrial markets continue their recovery. ITT will keep the aerospace, transportation, energy, and industrial engineering businesses, while the defense and water technology segments will spin off.
All-Star CAPS member aguadaboca says investors shouldn't write off the defense business just yet.
company announced, like Motorola, splitting cmpany into 3 cos...Defense buss hurt stocks performance, so investors happy, and many will look to defense buss srock as a buy with turn around as economy advances and Republicans back in congress! and,water buss will find favor for investors focused on this area.P/E's will go up!
You can watch ITT's progress by adding the stock to your watchlist and having all the Foolish news and analysis about it gathered in one place.
Squeezed to death
Sure, NVIDIA's shares jumped a lot yesterday, but they have been on a tear since the new year began, rising more than 50%. In fact, the chip maker's shares have doubled in just the past three months. Chips, in general, are moving up on the hope that mobile computing will spark a new era of growth, with Micron also moving 7% higher.
For NVIDIA, however, a legal settlement with Intel (Nasdaq: INTC ) means it will receive $1.5 billion in exchange for providing Intel access to its graphic chips technology. This comes at a good time because Advanced Micro Devices (NYSE: AMD ) is in the midst of a shake-up and is vulnerable to losing market share.
CAPS member JDAR5715 says the proliferation of tablet computers will help bolster the mobile computing bid, a point All-Star Terapixel would likely have problems arguing with.
Windows on ARM processors Nvidia is leader in hybrid ARM GPU chips = A new era for Nvidia in smartphones, tablets, netbooks, nettops, and even servers (ARM = power efficiency).
Going into orbit
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.