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)
|
Thursday's Change
|
| SFN (NYSE: SFN ) |
*** |
51.1% |
| Origin Agritech (Nasdaq: SEED ) |
* |
19.3% |
| Cell Therapeutics (Nasdaq: CTIC ) |
** |
13.3% |
The debt deal looks closer, Greece might get bailed out, and better-than-expected earnings reports are coming in; the market made another big move yesterday, soaring 152 points, or 1.2%. So stocks that went significantly higher are pretty big deals.
Higher and higher
With unemployment remaining stubbornly high and initial unemployment claims above 400,000 for the 15th straight week, staffing companies might not seem a good investment right now. But Netherlands-based Randstad thinks now is a great time to increase its presence in the U.S. markets and is offering to buy staffing specialist SFN for $770 million, or $14 per share, a 49% premium to its trading price over the month.
The deal would make Randstad the third-largest staffing company in North America, behind Adecco and Manpower (NYSE: MAN ) . The deal talk also gave smaller peers a boost, with Kelly Services rising 8%, TrueBlue (NYSE: TBI ) climbing 7%, and Robert Half (NYSE: RHI ) jumping 15% as it also reported strong earnings.
When you think about it, staffing companies ought to be good performers now. If companies need employees but don't want to make the commitment on salaries and benefits, a worker from a staffing agency is their best bet. That's probably why only one of the 89 All-Star CAPS members rating SFN thinks it won't go on to beat the broad market indexes. You can share your thoughts on the acquisition offer on the SFN CAPS page.
Lend me your ear
There was no particular news to send corn seed seller Origin Agritech higher, though a week ago it reiterated its fiscal-year guidance even as it announced the CFO was leaving the company. Maybe it was just a means of softening the blow, since a CFO departure might cause investors to get jumpy at a time when other companies in the same space, particularly those like Yongye International (Nasdaq: YONG ) , operate under a cloud suspicion. It previously guided to RMB 600 million to RMB 650 million, a 4.5% to 13% increase over the RMB 573.9 million generated in 2010, which is a pretty wide margin to drive through.
I expressed my doubts about Origin a few years ago. Since there's nothing to account for yesterday's pop, the gains it saw will likely be ephemeral. At best, it's earnings anticipation as Origin's biggest quarter is typically the third, due to its revenue recognition policies. But the company isn't expected to report until sometime next month.
More than three-quarters of the 423 CAPS members rating Origin expect it to outperform the broad market averages. You can add the stock to your watchlist to keep tabs on whether it will germinate again.
Advancing nowhere
Cancer treatment developer Cell Therapeutics also moved higher on no news, though there's been little of anything good to offer up lately. While the FDA is allowing it to resubmit its application for pixantrone, another therapy, Opaxio, is still in phase 3 trials, so it doesn't have any products on the market. Its CEO says it's burning through its cash at a rate of about $6 million a month and if they need more money they'll just go out and raise it.
They did that a few weeks ago and current shareholders were not amused, since the offering could be very dilutive. The stock dropped 14% in a day. While Cell Therapeutics is in a better place financially than it was in the past, there's little argument that it remains a speculative investment.
CAPS member ltgenspecific agrees it's risky, but thinks its lead drug candidate is effective enough to get approval. CAPS member Quaker08, on the other hand, thinks it will simply offer up the same thing it has in the past:
This has to be one of the worst investments in America. Expect more share dilution and FDA rejections. I don't think they will ever turn a profit or get a drug to market.
Which side do you fall on? Does it get pixantrone through the labyrinth or are there more dilutive offerings and reverse stock splits in its future. Some say CT needs new management. Let us know in the comments section below or on the Cell Therapeutics CAPS page what your opinion is.
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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