Once again the markets reversed course, but resist the urge to high-five everyone in the cubicles next to you just because your stock just strapped on a rocket pack. 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)
|PharmAthene (NYSE: PIP )||**||18.5%|
|TiVo (Nasdaq: TIVO )||**||17.0%|
|Zillow (Nasdaq: Z )||*||15.2%|
The market dropped 171 points yesterday, or 1.5%, so stocks that went appreciably higher are pretty big deals.
The drama continues
Is resolution finally at hand for the long-simmering legal feud between PharmAthene and antiviral maker SIGA Technologies (Nasdaq: SIGA ) ? There was no specific news to account for PharmAthene's jump yesterday (and SIGA fell more than 8%, too), which had some speculating good news was at hand. But it's also been speculated at times that SIGA will just go ahead and buy out PharmAthene.
The legal sparring started in 2006 after SIGA Technologies backed out of a deal to merge with PharmAthene after reporting positive results for its smallpox antiviral drug ST-246. However, the merger agreement had stipulated that if the deal fell through, the two would still go ahead with a joint marketing arrangement. Apparently, SIGA realized just how lucrative its antiviral was and tried to cut PharmAthene out.
However, the government rewrote the rules to essentially guarantee SIGA will win the contract, and now two congressional committees are investigating just how that came about. Although the Government Accountability Office had said the case would be settled this week, no decision has been forthcoming, hence the anticipation in the shares.
With 86% of those rating PharmAthene to outperform the broad market averages, it seems they're expecting the biotech to come out on top regardless. Tell us in the comments section below or on the PharmAthene CAPS page which way you think it will go.
Higher and higher
Fools look for companies with strong and growing organic growth, unaided by contributions from acquisitions, tax benefits, or other one-time cash infusions. Digital video recorder specialist TiVo has been showing growth, but all too often it has been from such one-time sources like legal settlements from DISH Network (Nasdaq: DISH ) and EchoStar (Nasdaq: SATS ) .
This quarter, though, TiVo reported sales soared 19% as technology licensing revenue more than doubled from last year. Without any comparison, the DVR maker was able to narrow its losses to $0.17 a share, lower than what analysts were anticipating.
And why shouldn't we see these kinds of numbers in the future, too? The pioneering recording expert won decisive legal victories protecting its patents from the incursion of interlopers like DISH and EchoStar. They're now licensing the technology and TiVo is building both software and hardware products that systems across the country will buy.
What really has CAPS members going now, however, is the possibility of a buyout. kryptonite09 thinks the time is right: "With [Google] taking out [Motorola Mobility], the Internet video space has become exciting again. TIVO could easily become a takeover target. With a $1bn market cap, it won't be that difficult."
Deep in the thick of it
Unlike housing, or the economy for that matter, real estate information provider Zillow is showing growth. Having gone public only a month ago, and displaying a stock price chart that resembles housing's latest sales numbers, it was able to record a profit as monthly unique users nearly doubled during the quarter to a record 20.8 million.
It bodes well for the future. People are perusing Zillow's site looking for information on housing, so if the industry ever does turn around it will be entrenched as the go-to site for data. Of course, as the number of 30-day delinquencies jumped for the second straight quarter in June, maybe homeowners were just seeing how far underwater their mortgages really were.
Zillow's marketplace revenue increased 269%, consisting of subscriptions sold to real estate agents and cost-per-click advertising. All those new eyeballs it generates are key to that growth, as well as stealing share from Move (Nasdaq: MOVE ) , the parent of Realtor.com.
From personal experience I know that each month Zillow sends me an email telling me how much my property value has risen or declined in the past 30 days (I assure you it's more often than not a decline). Included in the email is a link to the site to check on your own property and others in the area. "Unique users" is how many users visit the website once each month.
Yet with four out of five CAPS members rating Zillow to underperform the broad indexes, it's likely they imagine consumers will tire of seeing their values decline and just stop visiting. Lower unique users will lead to lower ad revenues. But move in on the Zillow CAPS page and let us know if you think it will be part of the American Dream of homeownership.
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 re-entry, or off to infinity and beyond.