European ministers continued fixing their financial houses, giving encouragement to rattled markets. Yet just because your stock strapped on a rocket pack and went even 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.
CAPS Rating (out of 5)
|North American Palladium (AMEX: PAL )||****||20.1%|
|ReneSola (NYSE: SOL )||***||18.3%|
|E-Commerce China Dangdang (NYSE: DANG )||*||16.0%|
With the Dow Jones Industrial Average (INDEX: ^DJI) jumping 183 points on Thursday, or 1.7%, stocks that went appreciably higher are pretty big deals.
A dry hole
Palladium prices are down about 25% in 2011 and are off about 30% from the highs at midyear. Palladium miners, however, have fared even worse. North American Palladium is down 65% year to date and is 70% below its 52-week peak. Stillwater Mining, the only U.S. palladium miner, is down 60% and 68%, respectively. It's a situation similar to gold, where the miners haven't done nearly as well as the bullion.
NAP's principal mine is the Lac des Iles property near Thunder Bay, Ontario. With deposits of copper, nickel, and platinum-group metals, North American Palladium is Canada's largest palladium miner. It is expanding the project to gradually increase its production to the rate of 5,500 tonnes per day by 2015 at a cash cost of just $200 an ounce. Generating higher rates of production won't begin till the fourth quarter of next year, however.
The miner also reported a debt-financing deal that issued notes at a rather high 9.25% rate and entitled the holder to purchase 0.35 ounces of palladium at $620 per ounce anytime up to October 2014. With prices under $600 an ounce now, it doesn't suggest much price improvement coming in the future.
More than 96% of the CAPS All-Stars weighing in think NAP it will outperform the broad market averages, so they're hopeful the current pricing pressures will be alleviated sooner rather than later. Add NAP to your watchlist if you're interested in learning more about its progress as well as getting closer to the opinions of other investors on the North American Palladium CAPS page.
Raining on the parade
There's a pall over solar power that extends well beyond the Solyndra bankruptcy. Last month, LDK Solar (NYSE: LDK ) led the way down, slashing revenue guidance, cutting wafer shipment projections, and hacking its module shipment forecast. Profit margins, it said, would be all but wiped out. Suntech Power (NYSE: STP ) provided additional confirmation that solar has some very cloudy days ahead of it.
Yet despite Solyndra's demise, President Obama reiterated his support of risking taxpayer money to back alternative-energy bets, which was all ReneSola apparently needed to surge ahead. That and speculation First Solar would get bought out helped pump up the stock by more than 20%. First Solar itself was once a high-flying stock, with shares trading north of $175. Today it trades for $61. It's certainly reasonable at that price, but ReneSola might be more attractive at its sub-$200 million market cap.
More than 1,200 CAPS members have weighed in on ReneSola, and 97% expect it to outperform the broad market averages. But you can tell us in the comments section below or on the ReneSola CAPS page where you see the next bit of sunshine coming from, and add it to your watchlist to be notified when it breaks through.
Amazon.com (Nasdaq: AMZN ) has ripped into the revenue stream of just about every bricks-and-mortar operation out there, making the prospects of a merry Christmas bleak indeed for some retailers. Even the recession hasn't been able to dampen the enthusiasm for shopping its virtual shelves.
E-Commerce China Dangdang, which fancies itself the Orient's version of Amazon, doesn't seem to have that same connection with consumers, and fears that the economy is coming in for a hard landing have tamped down enthusiasm. Shares of the mail-order site are down 85% from their highs, even including the no-news bounce it got yesterday.
I marked the e-commerce platform to underperform the market back in June (my pick is winning!) because it seemed the whole notion behind it and every other Chinese Internet stock hitting the market at the time was that it was merely the Chinese version of some U.S. business. Moreover, Dangdang is running into a situation where its costs are rising at a faster pace than sales. Revenues jumped 53% last quarter, but the cost of them was up 64%, with margins sliding 550 basis points.