The markets are putting together back-to-back days of stronger gains, but resist the urge to high-five everyone in the cubicles next to you just because your stock also 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.
|
Stock
|
CAPS Rating
(out of 5)
|
Monday's Change
|
| Central European Distribution (Nasdaq: CEDC ) |
*** |
49.9% |
| National Bank of Greece (NYSE: NBG ) |
*** |
37.7% |
| DryShips (Nasdaq: DRYS ) |
** |
13.2% |
With the Dow jumping 254 points Monday, or 2.3%, stocks that went appreciably higher are pretty big deals.
Banking on Greece
The Greek banking system got a big vote of confidence from foreign investors who apparently believe the entire system is about to come crashing down. The country's second- and third-largest banks agreed to merge to form what will be the largest Greek bank, while the current largest, National Bank of Greece, suddenly starts looking more attractive.
Eurobank and Alpha Bank agreed to join forces and have $211 billion in assets between them. To juice the deal, a Qatari investment fund agreed to kick in $720 million. The entire Greek stock market surged 14% -- even Greece-based shipper DryShips was up -- while the banking index rose 27%. Happy days are here again!
Or not. This merger was basically forced on the banks to keep the government from nationalizing them. Earlier this year, National Bank of Greece had offered to buy Alpha Bank and was rejected. But when the government said it was setting up a fund to capitalize the lenders to buy bank shares, the banks figured they better join forces to stay private. This doesn't mean the situation has really improved at all.
Some analysts think consolidation is what's needed in the U.S., too, and Greece could be a model to follow for Bank of America (NYSE: BAC ) and Citigroup (NYSE: C ) . CAPS member Shankapotamus thinks National Bank of Greece, like its U.S. counterparts, may just be too big to fail.
Tell us in the comments section below or on the National Bank of Greece CAPS page if you'd deposit your money there.
Shipping it in
At least DryShips has something going for it, although the odds are currently stacked against it. The Baltic Dry Index, which measures rates across the industry, is up about 50% off the lows it hit earlier in the year (though it's given back a few points in recent days), and China might be able to wrangle lower rates still.
But having gotten approval for its oil drilling subsidiary Ocean Rig UDW to sell shares, DryShips might be able to pad its balance sheet a little more. Still, the dry bulk shipping industry is filled with mines floating just beneath the surface, and investors need to take care.
CAPS member Delucien thinks now might be a good time to buy:
The industry has been beaten down to a pulp. These guys are still floating and diversified their shipping business. I think its a good buy if you can handle the risk.
Add DryShips to the Fool's free portfolio tracker to watch its progress in drilling as well as shipping.
Drink it up
Polish vodka distributor Central European Distribution also got some backing, this time from a private investor who revealed he had taken a 9.6% stake in the company. Earlier this year, I had noted that in its beaten-down state, CED might make a target for a takeover. I just thought it might be someone like Brown-Forman (NYSE: BF-B ) or Diageo (NYSE: DEO ) , rather than private equity.
Considering private equity's recent record with spirits companies, I'm not sure investors should be so thrilled at the latest development. The owners of privately held Stock Spirits had attempted -- but failed -- to lure Diageo to their vodka distributor, and then floated -- and pulled -- the idea of an IPO. But maybe private investor Marc Kaufman will have better luck with CED, since he is an industry consultant and was CEO of an importer and distributor of spirits in Russia.
Although some might think Wall Street is dipping into the sauce, since all nine analysts following CED think it will outperform the broad indexes, the CAPS community itself is high-spirited in its support, with 96% of those rating it thinking it will beat the Street.
Add CED to your watchlist then head over to the Central European Distribution CAPS page and drink in additional insights on its future.
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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