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) |
Tuesday's Change |
|---|---|---|
|
China New Borun |
* |
26.3% |
|
E-commerce China Dangdang |
* |
19.9% |
|
Hanwha SolarOne |
** |
17.3% |
Retail-sales data provided a respite from the gloomy economic news we've been accustomed to hearing lately, leading the markets to jump more than 123 points, or 1%. But as these gains are not expected to hold, stocks that went significantly higher are pretty big deals.
The short story
Alcohol feedstock producer China New Borun is no stranger to allegations of impropriety in its financials, and its stock trades more than 77% below its 52-week high, even after yesterday's bounce. But considering that the company recently reported stellar earnings results, with revenue surging 47% and net profits growing 38% year over year, it's not surprising that it gave back much of the gains in trading today as a new article questioning the veracity of its numbers surfaces on Seeking Alpha. The article doubts that a company that turns feedstock into grain-based alcohol can be as profitable as it says it is.
The CAPS community, meanwhile, remains highly suspect of its ability to beat the market, with 55% of the members rating China New Borun having given it the thumbs-down.
Corn consumption is surging globally, far outstripping farmers' ability to meet the demand. As a result, corn futures have risen 86% in the past year. And more than 75% of the corn being consumed in China is being used for industrial purposes, such as for animal feed, ethyl alcohol, and starch. Animal feed alone saw a 27% increase in usage. Both Archer-Daniels Midland
With prices near record highs, this at least gives credence to the supposition that China New Borun should have higher input costs, since corn makes up 85% of its cost of goods sold.
Share your opinion on the China New Borun CAPS page, and follow its progress by adding the biotech to the Fool's free portfolio tracker.
It's a bubble, dang it!
The social-media bubble flared anew, at least for a day, as E-Commerce China Dangdang ("China's Amazon.com"), Youku.com ("China's YouTube"), and even LinkedIn
Although 63% of the CAPS members rating Dangdang think it can beat the broad market averages, more than half the All-Stars weighing in don't feel the same way. CAPS member BuffettJunior1 thinks that some companies have simply found a way to attract Western investors who respond with Pavlovian resolve to all things China.
I've learned a little trick these Chinese companies are using. Have you noticed they all have China in their name? How many companies do you know that have America, Canada, Germany, etc... in their names? The reason they put China in their name is to draw in foreign investors, because China means growth.
Stay on top of Dangdang's developments by adding it to your watchlist.
Yearning for Yongye
Earlier this month, I wrote that investors should expect the big bounce Hanwha SolarOne enjoyed to be short-lived and that they could expect it to roll over again -- which it promptly did. Before yesterday's latest bounce, the Chinese solar shop had fallen 13% below the price it traded at before the previous run-up.
It's probably too easy to say you should expect the stock to die back once again. But I will. The CAPS Solar Power sector enjoyed a 4% bump yesterday as a whole, with JA Solar
However, CAPS member FOOLISHGB thinks Hanwha has some attributes that separate it from many of its compatriots.
Although I don't like China Investments due to lack of information/reporting data I believe this stock has huge upside potential because it is [a vertically integrated] company. This is a huge plus regarding control of input costs and … the effect it will have on profit margins. I have owned for 4 years. Probably got in [too] early but a $40 stock easy.
Throw brickbats down in the comments section below and your analysis on the Hanwha SolarOne CAPS page.
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 re-entry or off to infinity and beyond.
