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
|
| ProShares UltraShort Silver (NYSE: ZSL ) |
*
|
25.1%
|
| Polypore International (NYSE: PPO ) |
****
|
19.0%
|
| Hot Topic (Nasdaq: HOTT ) |
*
|
12.0%
|
The bears grabbed the market reins yesterday as jobless claims surged unexpectedly higher, making it four down days in a row. The euphoria that momentarily existed over the demise of the world's No. 1 terrorist was quickly replaced by renewed worries about the economy. Stocks tumbled 139 points yesterday, or 1.1%, so stocks that went significantly higher are pretty big deals.
New frontiers in investing
It wasn't a good day to be in precious metals yesterday, as both gold and silver lost some of their luster. Gold prices fell 3% and silver was down 12%. After having hit almost $50 an ounce, the value of silver has tumbled almost 30%, and was having one of its toughest weeks since the 1980s. Not surprisingly, betting against a continued bull market in precious metals would lead to the ProShares UltraShort Silver ETF soaring higher -- in fact, some 78% higher so far in May.
With silver prices pressured, miners are feeling the weight, too, and leading players such as Silver Wheaton (NYSE: SLW ) and Coeur D'Alene Mines (NYSE: CDE ) have fallen, dropping 13% and 14%, respectively, so far this month.
Yet there remain opportunities to profit from the fall in silver without having to take a gamble on a risky ETF. As the Fool's precious metals guru Christopher Barker notes, the drop in miner stocks gives investors with a long-term mindset the chance to scoop up shares at big discounts. Hecla Mining (NYSE: HL ) , for example, is trading at prices it hasn't seen in years and at a time when silver itself was going for much less than it is today.
CAPS member jed71 believes the rout in silver has run its course, so he's betting against the ETF. The way ultrashort ETFs are designed, however, may open investors up to excess risk of loss if these instruments are used for anything but day-trading. They're not buying stock in miners or actual bullion, but rather complex financial instruments such as options, swaps, and futures to achieve the requisite negative return. So when the index moves 10% in one direction or the other, you're not necessarily going to achieve double the opposite return on your holding. The risks are high and these are perhaps not the best vehicle for most investors to use.
Still, you can add the ETF to your watchlist to see whether the market will remain bearish against silver's continued bull run.
Not an uncommon occurrence
Knowing that Polypore International is a filtration technology specialist might lead you to believe that it was involved in wastewater treatment or similar function. Instead, it produces membranes that are essential in the manufacture of both lead-acid batteries and rechargeable ones as it regulates the ion exchange permitting the charging and discharge process to occur. A smaller segment of its membrane business is used in the health-care industry for hemodialysis.
Polypore is one of the top three makers of membrane separators who together supply 70% of the lithium battery market with their technology. In the lead-acid battery market, Exide Technologies (Nasdaq: XIDE ) is one of its top customers, though its percentage of sales fell below 10% last year.
With the lithium-ion battery market set to grow at a rapid pace and the demand from electric vehicle makers for rechargeable batteries set to soar even higher, Polypore may see more quarters like the one it just reported that helped its stock price pop. As CAPS member MOTV8 asks, Polypore should excel "Since the electric car is our future, right?"
Charge up the Polypore International CAPS page with your thoughts about its future.
Making a connection
Just a couple of weeks ago I noted Hot Topic's future "looks as dark and bleak as the emo-goth segment of the teen population it targets." One of its directors had plunked down more than $4.3 million to buy shares despite it not having had any appreciable increase in same store sales for years. Well if the retailer didn't go and post and big pop in comps last month to prove me wrong, with sales at stores open for more than a year jumped a healthy 10.5%.
Of course, a one month increase does not a trend make, but the management shakeup it orchestrated may in fact make its forecasts for a brighter day ahead come to fruition.
CAPS member CRACKTACTOR isn't convinced, however, believing mall-based footprint puts it at a disadvantage.
Mall based, when Malls are busy shuttering: low Internet profile and just not cool (my daughter is an eleven year old fashionista in East Hollywood, the Capital of Emo-Goth, and she KNOWS).
But you can stay on top of the company's developments by adding Hot Topic 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.
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