Whoa! Why Did My Stock Just Soar?

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.

The U.S. markets looked fairly resilient in the face of the collapse of the Nikkei bourse. After being down 170 points at one point Monday, the market rallied to end down just 51 points. It's a big turnaround, for sure, but the Nikkei collapsed again Tuesday, dropping 11% (after being down 14% at one point). As U.S. markets ride out the aftershocks, stocks that went significantly higher despite the tumult are definitely worth noting.

New frontiers in investing
Berkshire Hathaway's (NYSE: BRK-B) decision to buy lubricant maker Lubrizol isn't quite as bold as it first looks.

At the end of last year, Berkshire completely sold out of its position in specialty chemical maker Nalco Holding (NYSE: NLC), most likely because it was a company chosen by GEICO's Lou Simpson before he retired. But on closer inspection, Buffett decided he liked the industry, and considering Lubrizol was buying Nalco's consumer product division, he was able to essentially get two companies for the price of one.

The market was already bullish on Lubrizol; 92% of the CAPS members rating it believed it would outperform the broad market averages. All Stars were even more positive about the outcome. Now you can put Nalco Holding on your watchlist, and see whether it's able to generate as much enthusiasm as Lubrizol has.

Making smoking "healthy"
With the FDA regulating the tobacco industry, cigarette technology company Star Scientific wants its "modified risk tobacco product" to get the agency's seal of approval. Star makes tobacco lozenges that dissolve in the mouth. Since they remove virtually all the measurable tobacco-specific chemicals that have been identified as causing cancer, Star wants them to receive the modified risk designation.

Unforunately, Star Scientific continues to battle larger, better-financed competitors. GlaxoSmithKline (NYSE: GSK) markets its Commit lozenge for smoking cessation, while Phillip Morris and Reynolds American (NYSE: RAI) produce a rival product called Snus, a moist powder tobacco.

In addition, Reynolds and Star are locked in a legal battle over patent infringement. Previously, Reynolds won a decision that sent Star's stock plummeting 73%, but last Friday, Star was vindicated when the U.S. Patent Office ruled that its patents for reducing carcinogens in cigarettes are valid. The company says the decision cannot be appealed.

CAPS All-Star member zzlangerhans has doubts about many of Star's products' supposed miraculous properties, and he's expecting dilution to hit shareholders soon:

In short, this company has been floundering around trying to sell some supposedly low-carcinogen tobacco substitutes which no one is buying. In the year I've been watching them their cost of sales has been more than double their miniscule revenues every quarter. A steady burn has brought the cash position down to 6M as of September 2010, with depressing full year numbers for 2010 soon to be released. In short, this company needs cash very badly and there's only one place they're going to get it-the capital markets.

Whether or not the patent-office win ultimately translates into higher sales, you can keep tabs on Star Scientific by adding it to the Fool's free portfolio tracker.

And a newer high
Strap yourself in for the roller-coaster ride that is Cheniere Energy. First, its plans to export liquid natural gas from its Sabine Pass facility in Louisiana sent shares soaring. Then those shares plummetted after a hedge fund said that Cheniere defaulted on its debt. Now they're heading back up, as the disaster unfolding in Japan has investors thinking that demand for natural gas will rise amid lingering questions about the future of nuclear energy.

CAPS member EPS100Momentum says that along with wood, natural gas should be at the top of a very short list of necessities for helping Japan to rebuild:

The other biggest item needed is LNG, with damaged power plants being shut down probably for years if they ever do come back online, Japan will need LNG to replace the energy it has lost from the Power plants.

By adding Cheniere Energy to your watchlist, you'll be able to see whether reconstructing a country will help rebuild its own future.

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.