Hope and fear over Europe's condition keep whipsawing stocks. 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)
|Cheniere Energy (NYSE: LNG )||**||68.6%|
|Manitowoc (NYSE: MTW )||****||22.1%|
|Rentech (NYSE: RTK )||**||18.3%|
With the Dow Jones Industrial Average (NYSE: ^DJI) rebounding 162 points yesterday, or 1.4%, stocks that went appreciably higher are pretty big deals.
The main reason for growth
Vindication must taste sweet for Cheniere Energy after years of having to endure critics who thought its natural-gas liquefaction facility in Louisiana would come to naught. While the plant will begin construction next year, U.K.-based BG Group signed a 20-year deal to purchase 3.5 million tons of LNG annually, with exports beginning in 2015.
Earlier this year, the Energy Department approved Cheniere's export application, making it the first such company to get export approval in more than 40 years. Cheniere's subsidiary Cheniere Energy Partners owns the liquefaction facility and was the subject of accusations by a note-holding hedge fund operator who accused the company of effectively defaulting on its debt. It said that payments between Cheniere, the subsidiary, and the Sabine Pass facility were not revenues under GAAP reporting requirements. Cheniere has sued the hedge fund in response.
Highly rated CAPS All-Star EnigmaDude notes the significance of the BG agreement, but also notes that the payoff is still years away: "[S]hort-term pop on big news, but it will be several years before it will pay off, so probably will close this pick in a few months."
Crane your neck
Diversified manufacturer Manitowoc enjoyed a booming crane business, with segment revenues surging 21% in the quarter. Its food-service division served up hearty results as well, as sales rose 10% over the year-ago period.
Caterpillar (NYSE: CAT ) got the ball rolling in the heavy-equipment space, reporting profits that soared 44% year over year. Illinois Tool Works also saw high demand for its equipment, generating higher profits.
The risk for Manitowoc remains its heavy debt load. It had to resort to a refinancing to stretch out the maturities of its debt earlier this year, and while that gave it some breathing room and strengthened its capital structure, the crane operator still only has $93 million in the bank while carrying nearly $2 billion in debt.
Margins are a little week on their cranes, better on their Food Service. I'm a proponent, (especially after [Caterpillar's] earnings) that the emerging markets are picking up. Equipment destroyed in the recent [disasters] needs replaced, and equipment is needed to rebuild. Capital purchases can only be deferred for so long.
In the spotlight
Shares of alternative-fuels company Rentech got a lift after the company revealed the terms of its nitrogen fertilizer business IPO. It hopes to raise around $250 million by selling 15 million units at a price ranging from $19 to $21 a stub, and will trade on the New York Stock Exchange under the symbol "RNF."
Rentech is focusing on developing cleaner-burning jet fuel made from plant-based biomass, but its gasifier project got cut out of the financing loop by the Energy Department this summer, sending its stock barreling lower.
When it goes public, Rentech will own 60% of Rentech Nitrogen, which had $176 million in sales for the 12 months ended in June, and will see it compete against such established players as CF Industries and Mosaic (NYSE: MOS ) .
It's likely the difficulty Rentech's gasifier project faces accounts for the large contingent of CAPS All-Stars rating it to underperform the broad market indexes. Nearly a third think it can't beat the Street. Add the alt-fuels specialist to the Fool's free portfolio tracker if you'd like to watch what happens when the company splits in two.