Whoa! What Just Happened to My Stock?

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 a few stocks that just hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating
(out of 5)

Thursday's Change

Polymet Mining (NYSE: PLM  ) *** 21.5%
Hanmi Financial (Nasdaq: HAFC  ) * 17.6%
Spreadtrum Communications (Nasdaq: SPRD  ) * 14.5%

Marking its best four-day rally since last September, the market continued jumping higher, rising another 153 points, or 1.3%. So stocks that went significantly higher are pretty big deals.

Digging in the dirt
Polymet Mining is sitting on a gold mine. And a copper and nickel mine, too. Its NorthMet mine is one of the world's largest undeveloped deposits of copper, nickel, and other non-ferrous metals. When developed, it will bring untold riches, but there are substantial obstacles in its way. For instance, although Polymet owns the rights to the minerals in the ground, the U.S. Forest Service owns the surface rights. Unless the company can gain access to that land, those riches will remain right there in the ground.

And it would be lucrative. The reserves at the mine were calculated when prices on these metals were substantially lower than they are today: Copper reserves were calculated at a price of $1.25 per pound, but today copper trades at more than $4.28 a pound; nickel was priced at $5.60 a pound, yet it now goes for $10.53. Most telling, gold was valued at $400 an ounce at the time, and it goes for $1,500 an ounce today.

The copper deposits alone are worth the effort. Copper mines owned by Freeport-McMoRan (NYSE: FCX  ) , BHP Billiton, Rio Tinto (NYSE: RIO  ) , and Anglo American are all facing double-digit drops in production this year. With the easy-access copper already mined and demand for the metal so high, prices are going to rise higher.

Yesterday's jump was precipitated by approval of a $4 million loan from the Iron Range Resources and Rehabilitation Board, the proceeds from which were used to purchase 5,375 acres of recreational land inside the boundaries of the Superior National Forest. Those lands will then be swapped with the Forest Service property on which its mine sits.

More than 92% of the CAPS members rating Polymet believe it's worth the wait until approval is granted and mining begun. Although the potential is there, Polymet has no other source of revenues and the opposition to the mine needs to be calculated into the equation. Share your opinion on the Polymet Mining CAPS page and follow its progress by adding the miner to the Fool's free portfolio tracker.

Don't bank on it
After plans to be taken over by South Korea's biggest financial services institution fell through, Hanmi Financial was allowed to pursue other takeover bids or raise cash in other ways. The Pacific coast regional bank had looked during the depths of the recession like it would succumb to a federal takeover, but it aggressively raised capital and has since pursued a course of deleveraging its balance sheet and building up core deposits.

Regional banks have been particularly hard hit by the lackluster economy and its inability to gain traction, and the industry is ripe for consolidation. They're still reeling from the Fed's low interest rate policies that squeeze off revenues and pressure margins.

Hanmi was going to pursue a secondary offering of stock, but despite being fully subscribed with an excess of demand, it pulled it from the market. They said the market was mispricing the bank and until the environment improved, they were strong enough to forgo the cash they would have made. Apparently that inspired investors to bid the stock up, but it's obviously still struggling, and just 59% of CAPS All-Stars rating the bank think it will outperform the market averages.

Deposit your thoughts on the Hanmi Financial CAPS page and add it to your watchlist to keep tabs on who might be interested in it in the future.

Spreading the truth
Has all the low-hanging fruit of fraudulent Chinese small-cap stocks been picked? Probably not, but the attack on Spreadtrum Communications seems like a new tack being taken by short-sellers.

Muddy Waters has taken down China MediaExpress, RINO International, and Duoyuan Global Water with revelations of financial impropriety. Although shareholders often castigate the likes of such short-sellers, they're actually doing a good service for investors by exposing fraudulent practices. However, its latest report on Spreadtrum Communications wasn't so much an accusation of fraud -- though when the report hit the markets the stock plummeted 34% -- but rather a critique of management and its strategy. Seeing there was more smoke than fire, the markets bounced Spreadtrum's shares higher.

Sales have been on fire at the radio chip specialist, and everyone from Qualcomm (Nasdaq: QCOM  ) to Marvell Technology (Nasdaq: MRVL  ) is eying its niche. Although CAPS member Emilie111 took the cautious route by down-thumbing Spreadtrum as a result of the report, analysts have dismissed its import and the broader CAPS community thinks it can continue to exceed market expectations.

If you think that where there's smoke there's fire, add the chip maker to the Fool's free portfolio tracker to see if it can douse the flames of doubt.

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.

The Motley Fool owns shares of Marvell Technology and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.


Read/Post Comments (2) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2011, at 4:06 PM, leelinch wrote:

    you said of Muddy Waters... "its latest report on Spreadtrum Communications wasn't so much an accusation of fraud -- though when the report hit the markets the stock plummeted 34% -- but rather a critique of management and its strategy"

    Are you sure you read the story? This one has obvious accounting issues and such a dramatic turn around in the business almost overnight soon after they fired a couple of the brass (likely, the honest ones not willing to go along with cooking the books).

    Muddy Waters only shot a salvo this week but, trust me, they have much more ammo in the barrel that hasn't been fired yet. Only fools buying this company around this $15 area. They all think their China stock is different, and they all have blinders on.

  • Report this Comment On July 01, 2011, at 11:19 PM, Medicalrecordman wrote:

    Muddy Waters is most likely playing "rope-a-dope" and sucking in more folks right now for the big takedown. They simply took a shot across the bow and with today's put action looking impressive in the face of a rising stock price, it's obvious folks are betting on "Part 2." Also gotta love how Morgan Stanley (in defense of the company) failed to mention the bogus acquisition of MobilePeak for $32.8 million dollars of shareholder money when in fact MobilePeak's revenues are a whopping ZERO. None of these Chinese companies rip off shareholders via insider stock sales, as they use the bogus acquisitions as their way of pocketing millions. Stay tuned, as there's more to come.

    P.S. If you want a legitimate acquisition, keep an eye on LPH, as they're about to close on a $106 million deal which gives them their 3rd fuel facility and all non-dilutive. Meanwhile LPH has virtually zero short interest (in other words, it's not a short-seller target) and a forward P/E of just 1.27 and this video of transparency is a "Must Watch" if you're not familiar with LPH .....

    http://www.redchip.com/visibility/video/displayClientVideofl...

    If a $106 million dollar acquisition that's non-dilutive doesn't prove legitimacy .... then nothing does.

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