Whoa! What Just Happened to My Stock?

U.S. markets rose as retail numbers came in strong, but 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.

Stock

CAPS Rating (out of 5)

Friday's Change

USEC (NYSE: USU  ) **** 53.4%
Solazyme (Nasdaq: SZYM  ) *** 18%
ATP Oil & Gas (Nasdaq: ATPG  ) **** 16.1%

With the Dow Jones Industrial Average (INDEX: ^DJI) rising 166 points, or 1.5%, stocks that went appreciably higher are pretty big deals.

A glowing opportunity
OK, up more than 50% on no announced news seems a bit odd for uranium centrifuge maker USEC, no? Although the rumor has it that its $2 billion Energy Department loan guarantee was approved to build the centrifuge, nothing's been published yet. The company itself said nothing's changed in its negotiations with the regulatory agency, and two weeks ago it announced that it was cutting spending and beginning layoffs.

If within the next day or so the loan is granted, it might suggest someone knew something beforehand and was trading on the information. A few weeks down the road, or next month even, and it may be Friday's action was just rank speculation. Certainly no one else in the uranium space was moving so sharply, as Denison Mines (AMEX: DNN  ) was up just 4% and Uranerz Energy was in line with the market's gains.

USEC does have some high short interest, though it's been on the decline in recent weeks and is at its lowest point in four months. But when the stock starts moving up, shorts start covering so it can feed into the gains. If no announcement follows up on Monday, look for USEC to give back a good chunk of change.

CAPS member modestus1, who bet early that the DOE guarantee would go through, won big, but add USEC to your Watchlist to keep abreast of developments, and see what others are saying on the USEC CAPS page.

Filling up
As majorkq schooled me recently, biofuels specialist Solazyme isn't a fly-by-night penny stock trying to capture the latest hot trend, but rather a company that's developed some key industry partners to help develop its process of transforming low-cost plant-based sugars into high-value oils. Bunge, Dow Chemical (NYSE: DOW  ) , and Chevron (NYSE: CVX  ) have all partnered with the oil specialist, and Roquette is willing to pay for R&D expenses to develop a nutritionals joint venture. Earlier this month it launched its skin-care line at JC Penney's Sephora stores.

Still, synthetic fuels are its main driving force, and I remain skeptical of its ability to make something that will be commercially viable anytime soon, particularly as Syntroleum and Rentech have only been marginally successful to date. The Fool's Alyce Lomax, however, thinks it has enough potential to add it to her Rising Stars portfolio.

CAPS member blesto is another who likes that there's more to this company than meets the eye.

Beaten down, and may get beat some more. They're more than just biofuel. Yes, (1) fuels and chemicals, but then (2) nutrition and (3) skin and personal care. But as far as energy production, it does seem promising.

Tell us in the comments section below or on the Solazyme CAPS page why I'm still behind the curve on this stock, and add it to your Watchlist to see if it ultimately fuels a new growth phase.

The inside track to profits
ATP Oil & Gas was another company moving sharply higher on no company-specific news, but insiders have been buying the stock recently, with some fairly significant purchases over the past few months. The CEO bought $1 million worth of stock back in June, and a director bought $1.5 million in August.

The stock has a heavy debt load, no doubt, but Dan Dzombak thinks it has valuable assets that will outweigh those drawbacks and, like the insiders, made it a pick of his own. That's right in line with the thinking of the CAPS community, where 97% of the nearly 1,500 members believe it will go on to outperform the broad market averages.

Let us know on the ATP Oil & Gas CAPS page whether you believe the oil driller can rise continue drilling down on progress, and then add the stock to the Fool's free portfolio tracker to see whether it makes good on its promise.

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 Solazyme. Motley Fool newsletter services have recommended buying shares of Chevron. 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.


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  • Report this Comment On October 20, 2011, at 3:19 AM, Cake123xyz wrote:

    I think you need to read into Solazyme a little bit more.

    The issue's not about making something commercially viable as much as it is about increasing manufacturing capacity, of which the company is doing via joint ventures. Unfortunately, building takes time, and these facilities wont' be ready until 2013 at the earliest.

    Commercially, the company is already capable of making $150+ oil barrel comparisons on a commercial test scale (been doing so since 2007) due to its ability to tailor oils & make whole barrels of specific cuts of a typical barrel of light sweet crude (ie. making whole barrels of just 'diesel' instead of "diesel+asphalt+heavy oils, etc etc.")

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    Referring to Syntroleum & Rentech isn't a great idea altogether, as neither is actually in the industry of algae-based biofuels, which should be seen as a separate industry altogether from fuels based off of coal tech & gassifiers, etc.

    -------

    Last of all, the company's fully disclosed several times that while biofuels are the ultimate goal (and i guess a "driving force" perse), they realize that its the lowest margin & highest volume industry out of all their focuses. Its impractical for a company w/ limited production capacity at present to focus entirely on this.

    Skincare & Nutriceuticals are their main emphasis at present due to the high margin's behind them, albeit lower volume. Alguronic acid's discovery led to a store-wide launch (all of their stores) of SZYM's Algenist brand in all of the Sephora stores only to be expanded further into JC Penny's Sephora stations. This is very atypical in itself, as most products require a limited store introduction trial to test the market first.

    Likewise, Roquette's more than just a side story. Their willingness to pay for all the CapEx for the 50 mt JV plant is huge. SZYM's food oils are more than just oil substitutes. They're oil improvements when you read up about them, which is likely the rationale for Roquette's all-in gesture in the 50/50 JV.

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    I could go on about Dow Chem & Unilever, but you get the point. There's more to this company than just biofuel... that's just the tag that stuck. And it's a pity you're not giving it justice that the Navy is loving SZYM. After all SZYM's biofuels were the first to be used in a Navy helicopter & naval vessel. Likewise, they've delivered the MOST biofuels than any other company to the Navy, and delivered months ahead of schedule. Again, a bit of a stretch to say not commercially viable. This point is only emphasized by the fact that the company spoke alongside the Navy's representative at the recent Clinton Global Initiative (http://www.clintonglobalinitiative.org/ourmeetings/2011/meet...

    C'mon, Rich, give credit to the company beyond your doubt's restraint.

    Let's admit it the company's stock price will likely suffer for a while since few people understand what this company's about, let alone know how to evaluate something that can't be profitable for another 2 years, but for the patient investors... this one's a winner.

    Once the company can have its own customized plants & secured its feedstocks rather than using toll plants, the numbers will show for themselves. As is the demand is already promised to be bought up by prominent companies extending into 2020.

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