Here we go again. After several days of better than 100-point gains, the markets are swooning again. If your stock just strapped on a rocket pack, you can smile about it, but resist the urge to high-five everyone in the cubicles next to you. Smart investors don't celebrate until they know an 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.
(out of 5)
|Casual Male Retail Group (Nasdaq: CMRG )
|Eastman Kodak (NYSE: EK )
|Qihoo 360 Technology (Nasdaq: QIHU )
The market plunged 420 points yesterday, or 3.7%, so stocks that went up are pretty big deals.
Higher and higher
This purveyor of plus-sized men's clothes put up some plus-sized quarterly numbers, and the markets responded in kind. Casual Male Retail Group, a clothier catering to the XL man and lifestyle, posted second-quarter profits that were 17% higher than last year as revenue rose and rents dropped. The apparel chain also gave guidance that was ahead of analyst expectations.
A number of retailers are taking advantage of the depressed economy to wrangle better rents from their landlords. Office supplies leader Staples was able to improve margins on the basis of improved rental leverage, as was teen retailer Abercrombie & Fitch, which saw expenses decline as a percentage of revenue.
Investors should take heed, though, that it may prove harder to match those gains in the future. While Casual Male sales rose 4%, Jos. A. Bank (Nasdaq: JOSB ) was viewed as having a disappointing quarter in June when sales rose 8.5%, and Men's Wearhouse (NYSE: MW ) fared even worse on a 23% jump in revenues. It also benefited from lower occupancy costs and is looking for a 12% to 13% jump in full-year sales.
Casual Male's gains may turn out to be thinner than they look. That could be why one-third of the CAPS members rating the men's retailer don't think its returns will be any huskier than the market's. You can let us know on the Casual Male Retail Group CAPS page whether you think profits can get bigger.
A blurry picture
When your patents are worth more than your entire company, it's natural to think that selling them will bring you good fortune. But in the case of Eastman Kodak, it's an idea I find patently absurd.
Kodak has been wielding some of its patents like clubs against tech companies that it wants to cow into paying it royalties. While Samsung and LG Electronics relented and agreed to a cross-licensing agreement, both Apple (Nasdaq: AAPL ) and Research In Motion have fought back against the argument that they're infringing on any patents. While Kodak has said the particular patent in question could be worth $1 billion in royalties to it, it's also one of the ones it's considering putting up for sale.
The once-iconic filmmaker's turnaround strategy has been built on one-time revenue infusions that have now dried up. This is just another such scheme, which, if successful, will further deplete its revenue sources. Yet in the wake of the patents from bankrupt Nortel going for $4.5 billion and Google buying Motorola Mobility (NYSE: MMI ) for $12.5 billion to get at its wireless patents, the market is assigning a greater valuation to Kodak's own portfolio and bumping its stock higher.
Earlier this summer, CAPS member TrojanFan figured a reorganization was in this company's future:
Reorganization is the likely path for this company if not an outright liquidation. I'm not sure that the equity will fair very well in that scenario because of all the debt that will likely be in front of them when the company probably files for Chapter 11 a few years hence.
Add Kodak to your watchlist then head over to the Eastman Kodak CAPS page and try to picture it with no cudgel to wield.
Secure in the knowledge
The IPO wasn't a success and the stock has had a rough time navigating the public markets despite some impressive quarterly results, but Qihoo 360 Technology is the third-largest Internet company in China, if you look at its active user base, and remains the second-most-popular browser behind Internet Explorer. If its earnings results the other day are any indication, it may just start courting some new respect.
Qihoo's antivirus software browser is popular, with active users hitting 209 million, a new record high, and well above the 192 million users it achieved in March. As a result, revenues rose 176% in the quarter and earnings came in at $0.11 per share, well above the $0.06 it turned in a year ago.
Highly rated CAPS All-Star brewersfan81 isn't surprised, viewing the mix of browser and security features as a winning combination: "Internet Explorer + McAfee rolled up into one, with a history of being able to monetize their browser."
Add the stock to the Fool's free portfolio tracker to track all the news and analysis as it continues its roller-coaster ride.
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.