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.
CAPS Rating (out of 5)
|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.
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.
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.
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.