Whoa! My Stock Just Whomped the Market!

Only those whistling past the graveyard had to expect Greece to live up to its austerity measures, but the markets tumbled nonetheless when it said it likely wouldn't meet its deficit-reduction targets. Yet just because your stock strapped on a rocket pack and went higher resist the urge to high-five everyone in the cubicles next to you. 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

Eastman Kodak (NYSE: EK  ) * 71.8%
Pharmaceutical Product Development (Nasdaq: PPDI  ) ***** 25.8%
Emergent BioSolutions (NYSE: EBS  ) ***** 11.0%

With the Dow Jones Industrial Average (NYSE: ^DJI) plummeting another 258 points on Friday, or 2.4%, stocks that went appreciably higher are pretty big deals.

Something smells
The first day of trading after denying it was in bankruptcy talks sent shares of Eastman Kodak soaring again. But I wouldn't be so cocksure. It's hired Lazard to advise it on selling its patent assets and took on the same restructuring law firm that helped Chrysler through its bankruptcy. Heck, even Kodak's creditors are necessarily buying into that line, as they've been in talks with the advisory firms about their interests in the event of a bankruptcy.

With some $1.5 billion in debt and apparently burning through cash such that it needs to tap its credit line to pay for day-to-day operations, the pressure certainly looks like it's mounting. I maintain that a buyout would be its best option, and while Hewlett-Packard might make sense since Kodak has been focusing on its printing business of late, breaking up the company and selling off its parts could raise even more cash.

Hewlett makes sense for the printer business (or Canon or Lexmark, even), while Google or Apple (Nasdaq: AAPL  ) might want its IP portfolio, particularly since Kodak has been trying to bludgeon Apple into paying royalties for allegedly violating one of its patents. Google, though, having just committed to spending $12.5 billion on Motorola Mobility, might not want to plunk down more money just yet.

Readers know I feel Kodak is circling the drain, and since it carries heavy underfunded legacy costs, a buyer might not want to take on that burden. In CAPS, I've previously rated the once-iconic company to underperform the markets. A bankruptcy filing could end up foisting the pension liability onto the taxpayer while giving possible buyers a chance to get the prime parts cheap.

Add Kodak to your watchlist, and then let us know on the Eastman Kodak CAPS page whether it's just putting up a brave front in the face of the inevitable.

Private developments
Contract drug developer Pharmaceutical Product Development agreed to go private after being offered $3.9 billion in cash by two private-equity firms. The stock, which had been trading about 25% below its recent highs, gained all of that back since the deal values PPD at $33.25 a share, though that's slightly below what management was hoping to gain.

Valuing the drugmaker at enterprise value-to-EBITDA of under 11, other CROs like Charles River Labs (NYSE: CRL  ) and Covance might feel their stocks are undervalued at just 7.5 and 7.9 times EBITDA, respectively.

All but one of the 225 CAPS All-Stars rating PPD believed it would outperform the broad market indexes, so even if the deal falls through -- Carlyle Group had to bring on another PE firm to get bank backing -- suggests that they think it can still do well on its own. Tell us in the comments section below or on the Pharmaceutical Product Development CAPS page whether you think the deal will go through, and then add the CRO to your watchlist to keep track of its progress.

A betting man
Emergent BioSolutions, SIGA Technologies, and Human Genome Sciences (Nasdaq: HGSI  ) are all working to add antivirals and vaccines to the Strategic National Stockpile. SIGA won a smallpox antiviral contract, HGS was awarded an inhalation anthrax contract back in 2009, and yesterday Emergent announced that it got an order from the government to supply it with 44.75 million doses of its own anthrax vaccine, BioThrax. The contract is worth $1.25 billion over five years, which, considering Emergent has just $284 million in sales in the past 12 months, makes this a pretty significant deal.

But earlier this summer, CAPS All-Star member and biotech guru zzlangerhans pointed to the many irons Emergent had in the fire to suggest that it would be successful.

They recently initiated a phase Ib trial of cheaply acquired Trubion compound TRU-16 in relapsed B cell lymphoma. Trubion's SBI-087 is in a phase II dose finding study for rheumatoid arthritis. Data from a phase II trial of their TB vaccine in infants is expected in H2 2012, and a phase IIb trial of the TB vaccine in HIV patients may be initiated in the near future. The company has also acquired rights to zanolimumab anti-T cell antibody for CTCL and PTCL from TenX Biopharma.

Stay on top of Emergent's other developments by adding it to your watchlist.

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.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Google, and Charles River Laboratories International. Motley Fool newsletter services have recommended buying shares of Google, Pharmaceutical Product Development, Apple, and Emergent BioSolutions and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2011, at 2:50 AM, velo21 wrote:

    Well I have to tell you as a technology sales manager I know there's a big project in which Kodak has signed a contract with a client to sell 150,000 all-in-one printers, I wouldn't discard Kodak just yet!

  • Report this Comment On October 05, 2011, at 5:10 AM, jproche277 wrote:

    Fashionable.... this is what it is now today.... you have to make negative comments about Kodak because it is fashionable. Unfortunately people read articles and very much less attention is paid to comments....

    Oh so Kodak has 1.5B debt ? is it due tomorrow ?

    Kodak had 950M cash at hands in June + a 400M line of credit established in April....

    Kodak burn about 350M each quarter in Q1 and Q2 and this is how their business model is established.... cash out in first half of the year, cash in in the second part.

    So now is Kodak going to go bankrupt ? ridiculous.

    A 300M market cap for a company with close to 1B cash at hands, valuable tangible assets, 5b+ sales in different business (yes they don't generate cash now but can be sold and consolidated and they are improving business performance), a 1B sales patent litigation with Apple/Rim with ITC (they could have the verdict anytime between now and Oct. 30 as this is the date given by slow moving ITC), a 2-3B patent sales going on (they will sell only about 10-15% of their patent).... etc etc etc...

    I would study Kodak business and consider what is happening today, why is share price so low and what could move the share price in the coming days/weeks/months before taking this investment opportunity to trash arguing the future will be like the past (share price depreciation).

    Insiders have well understood this as over 180K shares have been bought with only 2K sold in the last 12 months.

    If Kodak share price either go bankrupt in a close future or if its share does not reach back at least 5usd per share by end of the year, I will quit the investment world.

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