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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)
|Silicon Motion Technology (Nasdaq: SIMO )||
|Manitowoc (NYSE: MTW )||
|Hercules Offshore (Nasdaq: HERO )||
Yesterday, the market jumped 148 points, or 1.2%, swearing off concerns about world tensions. Indeed, the indexes hit 30-month highs, and the Dow crossed strongly over the 12,000 mark. Yet stocks that went up by even larger percentages are still big deals.
The devil's in the details
Video controller maker Silicon Motion's quarter was a blur, as revenue soared 17% sequentially and profits grew 13%. Yet it's likely to just be the start of even bigger growth opportunities.
The tablet market represents the next big boom in computing -- currently defined as the iPad. But with scores of new models introduced in the past month, that dominance won't last. The tablet PC will be a robust marketplace of competing products, and Silicon Motion, rather than NVIDIA (Nasdaq: NVDA ) or Advanced Micro Devices' (NYSE: AMD ) ATI division, will grab the lion's share here.
Tablets aren't optimized for the 3D graphics performance in which those two specialize, so there's no reason for manufacturers to not go with Silicon Motion's low-power controllers. And since it's one of the few chipmakers offering hardware rotation capabilities (for example, turning your tablet to view an image in portrait mode), it's got huge potential.
If mobile computing through tablets and smartphones is the future -- and there's nothing to suggest it's not -- CAPS All-Star member TMFZahrim finds Silicon Motion still an attractive investment:
The stock is very reasonably valued in light of its growth prospects, assuming that tablets and smartphones stay hot for a few more years, and it's an alternative avenue to investing in SSD storage without buying drive builders STEC (Nasdaq: STEC ) or SMART Modular Technologies (Nasdaq: SMOD ) . I may have missed the ideal entry point when the stock was 30% cheaper, but there's still plenty of upside left in the stock.
Making it to the big time
After it posted growth in both the cranes and food-service segments of its business, investors bid up Manitowoc's shares. Although some analysts are concerned that it won't be able to maintain the momentum it's generated, Manitowoc seems to be gaining traction where rival Illinois Tool Works (NYSE: ITW ) is slipping. The industrial rival reported profits that fell 19% from the year-ago period, and missed the targets analysts set.
CAPS member Turfscape understands the cautious tone analysts are taking, but salutes Manitowoc's diligence:
Manitowoc has taken the necessary steps to get its debt load under control and will be returning to profitability. The question remains whether the global economy will support growth for this maker of boats and cranes. China still has lots of potential for MTW, as does Mid-East markets, if political unrest and economic factors don't drag things down too far.
You can watch Manitowoc's progress by adding the stock to your watchlist and having all the Foolish news and analysis about it gathered in one place.
A Herculean effort
No particular news related to Hercules Offshore seemed to cause its stock to jump 19% yesterday. The Gulf of Mexico is still a no-drill zone, with Hercules and Seahawk Drilling owning two-thirds of the shallow-water rigs there. Yet with permits hard to come by, 60% of the rigs remain unleased. Dayrates are also in decline, and Hercules' balance sheet is in disrepair.
Yet even with the bump yesterday, Hercules still trades for less than its book value, which just might make it an attractive takeover candidate to someone. Leading jackup rig specialist Transocean (NYSE: RIG ) has more than $1 billion sitting in its bank account for such a purchase. But even if Hercules stays independent, CAPS member kmacattack likes its chances for returning to profitability.
With more than 1,600 CAPS members weighing in on the driller, 97% say it will go on to beat the broad-market averages. You can add Hercules to the Fool's free portfolio tracker, then drill deeper on the Hercules Offshore CAPS page for further insights.
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 reentry, or off to infinity and beyond.