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
|
| DST Systems (NYSE: DST ) |
**** |
12.8% |
| Hollysys Automation Technologies (Nasdaq: HOLI ) |
** |
11.3% |
| Stein Mart (Nasdaq: SMRT ) |
* |
10.7% |
Easy come, easy go. A day after the markets rejoiced over retail sales data, they plunged into gloom about Greece's financial situation, dropping almost 179 points, or 1.5%. With bond king Bill Gross arguing that the U.S.'s condition is even worse than Greece's, stocks that went significantly higher are pretty big deals.
The short story
Sometimes, you just want what someone else wants, even if you don't need it. Management at DST Systems reported that it had gotten some informal private equity calls about a buyout. But the company said no thanks, confirming that it wasn't in talks with anyone.
That was enough to send some investors off to the races, bumping up the stock by nearly 13%. If someone else wants DST, then it must be a stock worth buying! Of course, private equity firms' interest in DST is ultimately less notable than the prices at which they bid for it. The would-be buyers offered deals in the mid-$60 range, which management said grossly undervalued DST. Investors might now believe that someone else will come along with a "fairer" offering.
Yet as the Fool's Cindy Johnson notes, that supposedly low $60ish bid still values DST at 15 times earnings for 2011 and 2012. That may not a huge premium, but it seems like a fair value. The company offers software and processing solutions to institutions in the financial services industry, competing against giants such as Bank of New York Mellon (NYSE: BK ) and smaller rivals like TIBCO Software (Nasdaq: TIBX ) . Then again, the buyout offers just might be lowballs on that basis, since TIBCO trades at 23 times forward estimates.
The CAPS community supported DST even before the buyout offers surfaced, with 93% of those rating it believing it will outperform the broad market averages. Share your opinion on the DST Systems CAPS page, and follow its progress by adding it to the Fool's free portfolio tracker.
SPACkle the wall
No particular news accounted for Hollysys Automation Technologies' run-up. With 15% of its shares sold short, maybe short sellers just felt squeezed. Then again, maybe it's just the mania surrounding small cap Chinese stocks.
Like RTO stocks such as China-Biotics (Nasdaq: CHBT ) , special purpose acquisition stocks (or SPACs) like Hollysys also go public without an IPO. Any number of these companies are now whipsawing to investors' dueling impulses of fear and greed. They fear that their company will be revealed as a fraud, but are greedy about the potential a huge market like China provides.
A month ago, the shares plunged for no reason. Yesterday, they soared. Today, they're down almost 6%. Without no hint of impropriety surrounding the company, 80% of the CAPS members rating the Chinese automation and control specialist think it will outperform the broad indexes. Its two-star rating, however, suggests that they think there are better places for your money.
Stay on top of Hollysys's developments by adding it to your watchlist. Then leaving a comment below on where you think its next big move will originate.
A retail story
Rosy retail numbers undoubtedly helped push Stein Mart higher. Last month, the department-store operator said that profits jumped nearly 10% from the year-ago period, easily beating analyst expectations. Stein Mart reported earlier this month that May comps rose 0.7%, though that was nothing compared to the 7% May jump at Macy's (NYSE: M ) and the 20% increase at Saks.
Earlier this year, highly rated CAPS All-Star DarthMaul09 feared that the economy's lingering malaise would eventually catch up with the retailer:
Food and energy prices appear destined to rise, which means less buying power for even those that are still employed. In addition, those not working or retired will see their saving evaporate sooner than expected, which will not create a good environment for retail businesses. Consumer credit is unlikely to rescue the buyer or seller this time.
That's still possible. Stein Mart's overall sales were weak last month, with autos leading the decline. Only a narrow slice of the market achieved the reported retail gains, but at least we can include Stein Mart in that slice. Throw brickbats down in the comments section below, and offer your analysis on the Stein Mart CAPS page.
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 reentry, or off to infinity and beyond.
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