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)
|InterDigital (Nasdaq: IDCC )
|Abraxas Petroleum (Nasdaq: AXAS )
|Advanced Battery Technology (Nasdaq: ABAT )
With a possible debt deal done and earnings reports coming in better than expected, the market made a big move yesterday soaring 202 points, or rising 1.6%. So stocks that went significantly higher still are pretty big deals.
Crossing the digital divide
Just a few weeks ago, shares of InterDigital went higher based on speculation that its portfolio of 8,800 wireless communication patents would be valuable to someone after Google (Nasdaq: GOOG ) was outbid by a consortium of companies that snapped up the patents of bankrupt Nortel. Apple, Research In Motion, EMC (NYSE: EMC ) , and others paid $4.5 billion for the patents, putting Google's $900 million low-ball bid to shame.
Yesterday, rumor became fact as the telecommunications leader announced it was looking to sell off those patents or the company itself. Google's lackluster effort last time could mean it will not miss this second opportunity to garner for itself a passel of IP protection, but it wouldn't surprise me to see Qualcomm's name be the next one bandied about in relation to thinking strategically, since it also owns numerous wireless patents.
Just last week, CAPS member marshgerda was ruminating on the value InterDigital's patents held for the company.
the recent auction of Nortel patents for $4.5b suggests tremendous unlocked value in IDCC patents. IDCC is valued at $1.98b and has about $500m in cash with virtually 0 debt. Toss in solid earnings (trades at trail EBITDA to EV of 6.6) and a new dividend policy and I think this is a stock to hold as we expand the wireless revolution.
Share your thoughts on the InterDigital CAPS page and follow the strategic planning process by adding it to the Fool's free portfolio tracker.
Drill, baby, drill!
There was no particular news to send Abraxas Petroleum higher, but it was presenting at a Global Hunter Securities investor conference, so maybe someone liked what the driller had to say. Earlier this month, it purchased a used rig that it was going to refurbish and move to the Williston basin. Apparently, it is expecting a lot of business, as it chose to buy its own rig rather than try and secure one elsewhere.
After disappointing earnings in April, Abraxas said it was going to concentrate primarily on its oil holdings, as Chesapeake Energy (NYSE: CHK ) and EOG Resources have both done, and it would drill in Texas and in the Williston to marshal its resources. Things seem to be going according to plan.
With 96% of the 730 CAPS members rating Abraxas to outperform the broad market averages, I'm not certain they weren't already thinking it would do so. You can add it to your watchlist to keep tabs on whether its other plans come to fruition, too.
And it was just a few months ago that shares of Advanced Battery Technologies were slammed by a negative research report accusing the lithium-ion battery maker of fake, unrealistic financials. While little more has been heard since then, the stock had drifted another 50% lower. Only a $10 million stock buyback program was able to halt the slide, though announcing a buyback and following through are two different things.
Yesterday's move was apparently on no news, too, but Energy Conversion Devices (Nasdaq: ENER ) announced it was selling its ovonic battery business. ECD is a manufacturer of thin-film flexible solar laminate products for rooftop solar systems and wants to focus on its core strengths by selling the advanced battery technology division. It seems that investors must have drawn parallels between the two businesses.
While 86% of the more than 1,000 CAPS members rating Advanced Battery think it can beat the market, its low two-star rating suggests they think there are better places for your money. How about you? Let us know in the comments section below or on the Advanced Battery Technologies CAPS page whether you think it can electrify the future.
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.