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)
|Yongye International (Nasdaq: YONG )||
|FuelCell Energy (Nasdaq: FCEL )||
|Hanwha SolarOne (Nasdaq: HSOL )||
Relief that Greece apparently won't financially collapse helped the markets jump 128 points yesterday, or 1%, so stocks that went significantly higher are pretty big deals.
The short story
Investors got really excited yesterday, when Morgan Stanley (NYSE: MS ) stepped into the breach and invested $50 million in preferred shares of Chinese fertilizer maker Yongye International. The investment house said it believes that Yongye, long the target of hedge funds and short sellers who accuse it of fraudulent activity, is an "exceptional company." Along with the preferred shares, Morgan Stanley will get a seat on the board of directors to keep an eye on its investment.
That's all well and good, and my Foolish colleague Rich Smith believes it's a huge vote of confidence, but simply following the "smart money" into the maw of doubt is not always the savvy investment to make.
Investors will remember another Chinese small-cap stock riddled with allegations of fraud, ChinaMedia Express, which had an investment by the smart money-types at Starr International, the hiring of Deloitte as its auditor, and the clean bill of health bestowed on it by the research analysts at Global Hunter as reasons to believe all was well. The stock has since been delisted from the Nasdaq and now trades on the Pink Sheets. Sometimes the smart money looks awfully dumb.
On a more fundamental basis, I'm not convinced that Yongye offers real value. I wrote once before that although both it and China Green Agriculture (NYSE: CGA ) base their fertilizers on fulvic and humic acid, U.S. companies do not. There's no settled science that they're effective as management contends, so the brand that Morgan Stanley says Yongye is establishing may be as ephemeral as yesterday's gains prove to be.
CAPS member irishred1 likes the three-pronged attack Yongye is taking to instill confidence, but All-Star catoismymotor thinks the hangover is likely to set in quickly. Plant your opinion on the Yongye International CAPS page and let us know whether Morgan Stanley has seeded the stock for further growth.
Getting an order that's worth more than one and a half times what you made over the entire past year is certainly worth celebrating. Power-plant maker FuelCell Energy reported that it received an order from steel producer Posco for 70 megawatts of fuel-cell kits worth $129 million over two years. FuelCell generated just $83 million over the past 12 months. The order will be used by Posco's power-generating subsidiary.
It's not the first deal between the two companies, as FuelCell supplies Posco's new fuel-cell module assembly facility with fuel-cell components. It also receives royalties from every new fuel-cell power plant Posco builds and installs. But the current $129 million order is exclusive of such royalty payments, so the full value FuelCell realizes could end up going much higher.
CAPS All-Star SultanOfSwing noted the Posco deal as the reason for believing that FuelCell will beat the market. And it may convince others as well, with more than one-third of the top CAPS members having indicated their belief that the fuel-cell kit maker would lag the broad market indexes.
Keep track of the power that this deal generates for FuelCell's stock by adding it to the Fool's free portfolio tracker.
Making a connection
Expect Hanwha SolarOne to retreat as quickly as it rose. The stock has been on a roll since reporting earnings that showed sales rising 48% over the year-ago period. Yesterday's move was probably more of the same, along with a general bounce in solar stocks. The 42 stocks comprising the CAPS Solar Power sector rose more than 5% yesterday, with peers such as JA Solar (Nasdaq: JASO ) and Canadian Solar (Nasdaq: CSIQ ) both up 6% each.
The forecast for lower prices, though, is based on management's statements that it expects shipments to flag next quarter, as falling prices and higher-priced inventory affect results. It's also counting on markets such as China, the United States, and Germany to help boost results in later quarters, but there's plenty of uncertainty in each of those markets.
The stock has fallen by more than 6% as I write, so it seems the market is in agreement. But with more than 93% of the 1,200 CAPS members rating the solar shop to outperform the market, I'm probably in the minority. You can shine a light on your opinion by visiting the Hanwha SolarOne CAPS page, and you can stay on top of the company's developments by adding it to your watchlist.
Going into orbit
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 re-entry, or off to infinity and beyond.