Whoa! What Just Happened to My Stock?

Even though it could cost European taxpayers well over $1 trillion, hope for greater financial stability in Europe again drove U.S. markets higher yesterday. 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.

With the Dow Jones Industrial Average (NYSE: ^DJI) jumping 105 points yesterday, or almost 1%, stocks that went appreciably higher are pretty big deals.

Sounds good to me
Chinese stocks got a boost yesterday, with mobile-phone app maker Sky-mobi jumping because of an agreement to provide SINA's (Nasdaq: SINA) Weibo microblogging site as a downloadable app, and Silvercorp Metals running up after the accounting firm KPMG could find no instance of fraud. Last month the Chinese miner was accused of such in an anonymous letter.

Sky-mobi is looking for something to attract users to its applications. Last quarter, it reported that its Maopao application store generated a record 5.8 billion user visits, but those users apparently weren't finding much to download, it seems. Downloads were lower than anticipated at 787.2 million. Revenues rose just 2% while operating profits crashed 28%.

Part of the problem is lower handset sales as mobile carriers face a more difficult environment and have to pay hefty subsidies on the phones the carriers sell, which eats into margins. Earlier this year, China Unicom, China's second-largest carrier, reported that subsidies will total 30% of its revenues this year. The largest carrier, China Mobile, expects subsidies to rise 15% in 2011 to $2.7 billion.

While Weibo might help Sky-mobi, as it's become a popular destination for users, the Chinese government isn't exactly the poster child for open expression. A week or so ago, China's propaganda official said the Twitter-like services need tighter regulation. Crushing dissent is one skill China has honed to perfection.

Because of Sky-mobi's tether to older "dumb phone" technology, I marked it to underperform the market. CAPS members in general are split nearly evenly on the matter (it tilts slightly toward underperformance), but you can add Sky-mobi to your watchlist and let us know on the Sky-mobi CAPS page if you think investors will download its stock to their portfolios.

Anonymously yours
I'm skeptical of accounting firms big or small uncovering fraud at firms they audit, as I see a conflict of interest between looking for problems and getting fees from their clients. So I take Silvercorp's announcement that KPMG cleared it of financial skullduggery with a grain of salt. Silvercorp says the report shows that its cash and short-term investments as reported were "substantially correct" and that the findings don't support the allegations it reported higher revenues than it actually received.

Of course, when allegations are distributed anonymously, it also might be wise to use caution before flying off half-cocked. It could be a short seller trying to manipulate the stock's price, or it could be an employee afraid of retaliation. Considering the number of allegations of fraud against Chinese small caps, though, it's understandable investors would flee at the hint of impropriety.

Yet like Deer Consumer Products, Silvercorp fought back hard against the charge from the beginning. It's filed a lawsuit against those spreading the rumors, a move CAPS member lquadland10 is heartened by. How about you? Tell us in the comments section below or on the Silvercorp Metals CAPS page if you think it's been exonerated, and add it to your watchlist to check on its progress.

Looking for healing
Analysts who thought cancer treatment cabozantinib might get lost in the muddle may still prove correct, but the late-stage trial results Exelixis announced has the drug standing out from the crowd right now. Cabozantinib nearly tripled the performance of a placebo, even though it was somewhat short of what Exelixis anticipated.

For thyroid-cancer patients, Exelixis' treatment would compete against AstraZeneca's (NYSE: AZN) vandetanib, but in the more-promising prostate market, it could potentially go up against the likes of Johnson & Johnson, Dendreon, and Sanofi (NYSE: SNY).

CAPS member MajorBob04 finds the results encouraging for achieving its goals over the long haul.

Thyroid cancer results are very good. If cabozantinib proves to be safe or has limited side effects then the prospects for this stock are very good. If the drug works on prostate cancers or other cancers then the prospects for sustained long-term growth are even better!

Add the biotech to the Fool's free portfolio tracker if you'd like to watch it tackle new opportunities in the years ahead.