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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)
|Gulf Resources (Nasdaq: GFRE )||**||19.6%|
|Dillard's (NYSE: DDS )||*||15.3%|
|Dean Foods (NYSE: DF )||***||9.2%|
Sources: Yahoo! Finance and Motley Fool CAPS.
Concerns over the country's economic health and the continued pullback in commodities caused the Dow to tumble 100 points on Friday, or almost 1%, so stocks that overcame the headwinds to go significantly higher are pretty big deals.
Dealing with controversy
A couple of weeks ago, Chinese bromine maker Gulf Resources was hit again by charges of impropriety. The company is no stranger to these sorts of charges; last December, it had to rebut allegations it engaged in financial gymnastics, while the more recent accusation was that it was engaged in inappropriate self-dealing with a company owned and operated by its chairman and his family.
Gulf is a big bromine producer in China, a chemical used in everything from flame retardants and chemical manufacturing to oil and gas exploration. But with all the bad news pacing the stock, Gulf Resources has a heavy short interest: almost 5 million shares, accounting for more than 28% of the shares outstanding. With peers like Albemarle (NYSE: ALB ) and TETRA Technologies seeing global strength, shorts might be trying to cover before a positive earnings report upends them.
While investors hope Gulf has put these allegations behind it, the stock remains some 75% below its 52-week highs. CAPS member pbk100 suggests that if the bromine maker can prove the veracity of what it says it does, it's a very discounted stock.
Highly profitable yet trading for less than liquidation values IF filings are to be believed. Many people don't believe the filings, but they've just provided documentation to the SEC.
Ringing up the register
The market's reaction to department store operator Dillard's earnings report is perhaps more of a surprise than the results themselves. Revenues were up just 1%, but the company generated a 57% increase in profits. That's some pretty muscular growth and certainly worthy of investor support, but it's not like the market didn't know it was coming.
As we pointed out the other day, department stores in general have enjoyed good results lately, and April's sales came in much better than expected. Not only Dillard's, but also Macy's (NYSE: M ) and even Kohl's were able to put up some good numbers.
But before you get caught up in the excitement, note that Easter came later this year than it did last year, and that's going to have some impact. Nordstrom (NYSE: JWN ) had to cut its guidance for the year, and CAPS member qiziq thinks we'll find there may be more sizzle than steak at Dillard's:
Dillard's has made some fundamental changes in it's buying offices that have significantly improved its bottom line, thus supporting the meteoric rise of DDS. However, I believe that trading at over 45 is about the hype and not the substance.
Shop for additional opinions on the Dillard's CAPS page, and let us know your thoughts about its future.
Milking a stock for every penny
Investors milked the upgrade for dairy processor Dean Foods for all it was worth. The analysts at Goldman Sachs said the industry had likely reached its nadir and that Dean could see its margins stabilize. That would lead to a narrowing of the price gap between private label milk, for example, and name-brand products. Dean's stock could double in a year's time.
Grocery chains like Kroger and Safeway (NYSE: SWY ) have passed on the higher costs to branded consumer goods since it makes their own private label brands look more attractive, but they've been feeling the pinch of rising costs, too, and their own margins are coming under pressure. Particularly in the aftermath of the upgrade, the expectations for Dean Foods are no longer as messed up as was once believed.
CAPS member leaderoftheback may not be a big fan of Dean Foods generally, but he recognizes a company that can generate cash when he sees it.
Honestly, I don't really like the company or what they do, but sometimes I just have to ignore what I think and go with what I know, which is that they still generate a lot of cash; they over-reached when costs were lower; they've been overly and unnecessarily aggressive. Small changes in attitude will make big differences in profitability. They are the only game in may towns.
You can stay on top of the company's developments by adding the dairy processor 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 is headed for re-entry, or off to infinity and beyond.