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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.
|Community Health Systems (NYSE: CYH )||
|Anika Therapeutics (Nasdaq: ANIK )||
|Rediff.com (Nasdaq: REDF )||
After three consecutive days down, the markets dropped another 117 points yesterday, or almost 1%, as economic forecasts were revised lower and pessimism crept back into the equation. So stocks that went significantly higher are pretty big deals.
New frontiers in investing
"You're a liar, cheat, and a thief!" So says Tenet Healthcare (NYSE: THC ) as it fights off the unwanted advances of Community Health Systems. The hospital chain operator accused its rival of bilking Medicare and private insurers out of billions of dollars. Considering such explosive charges are not the norm in fending off even the most hostile of takeovers, the market placed a lot of credence in what was said and shares of Community Health plunged.
Of course, Tenet may have gone and cut off its nose to spite its face. The level of outrageousness contained in the allegations is likely to spark a federal investigation, not only of Community Health, but Tenet, too. Indeed, the entire sector was trading lower the other day because of the charge and the prospects of regulatory nosiness.
Yet Community Health's stock bounced back yesterday as further reflection suggests the company's billing practices may not be the outlier Tenet says they are. The federal program and insurers have been complaining for years over admitting patients that might otherwise have been seen on an outpatient basis. It's possible Community Health is in the mainstream of industry practice, though that casts something of a pall over the entire industry.
That's in line with CAPS member AStarSearch's thoughts on what the ultimate outcome of the charges will be: "Banking on the law suit being without merit. Well, actually I am inclined to think that they probably rip off Medicare. But I am betting that they will go unpunished."
Let us know on the Community Health Systems CAPS page or in the comments section below whether Tenet is onto something or has decided playing Russian roulette is a valid takeover defense.
Not an uncommon occurrence
There was no messy hostile takeover attempt forcing Anika Therapeutics' shares in either direction. In fact, there was no news at all to speak of. Last month it got a boost from a distribution deal with Bausch & Lomb and there have been some rumors on Internet discussion boards that Johnson & Johnson (NYSE: JNJ ) might be interested in making a bid for it.
Would that be a stretch? Anika is working with the pharmaceutical giant on Orthovisc, a treatment for osteoarthritis of the shoulder. Sales of the treatment were up 32% in 2010 and overseas revenues improved in the fourth quarter though they were still off for the year.
Regardless of the reason for the move higher, CAPS All-Stars are in full agreement that Anika will be able to beat the market averages going forward. Biotechfreak thinks it will soar as Food and Drug Administration approval comes about.
Anika Therapeutics has tremendous upside Potential in the near term. Anika awaiting 4 FDA approvals in the 1H 2011. The Biotech Company is profitable and cash flow positive. Anika is definitely one of the best Pick in the Biotech sector.
Head over to the Anika Therapeutics CAPS page and share with us whether you think it will continue as a stand-alone company.
Making a connection
Operating a Web portal in India similar to Yahoo! and Microsoft's (Nasdaq: MSFT ) MSN.com, I was fairly convinced Rediff.com would benefit from the subcontinent's commitment to increase its number of broadband connections by 700% next year. Although it's 17% off its 52-week highs, the stock has doubled since I made my CAPS pitch for it.
India will be investing $13 billion to boost broadband connections across the country. There are currently only 10.3 million now and it wants to boost that to 75 million by 2012 and 160 million by 2014. [Rediff.com] should be a prime beneficiary like BIDU and SINA were in China.
There was no news driving Rediff higher yesterday, but you can stay on top of the Indian portal's developments by adding the stock to the Fool's free portfolio tracker.
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.