Finding solace in the Federal Reserve's remarks that the economy was a little bit better than expected, the markets changed course and rose 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.
CAPS Rating (out of 5)
|Phoenix Cos. (NYSE: PNX )||****||25.0%|
|Silicon Motion (Nasdaq: SIMO )||**||22.1%|
|Boston Beer (NYSE: SAM )||*****||14.6%|
With the markets rising 178 points yesterday, or 1.5%, stocks that went appreciably higher are pretty big deals.
Shining a light on growth
Like its namesake, life insurer Phoenix is rising from the ashes, reporting significantly improved quarterly results though revenue continued to fall. It reported adjusted earnings of $0.18 a share compared to $0.15 last year and well ahead of the $0.07 Wall Street was forecasting.
While it is doing better than it has been, a lot of its gain was tied to lower mortality rates that more than offset the negative effects of its investment portfolio performance and low interest rates. Can it count on fewer people dying each quarter to bolster operations? It did decide to let insurance asset manager Conning manage its publicly traded fixed income assets.
Interestingly, insurance peer Lincoln Financial (NYSE: LNC ) also beat profit estimates and saw revenue fall, but it had the misfortunate of unfavorable mortality rates. Prudential (NYSE: PRU ) seemed to have a mixed bag with its U.S. individual life and group insurance division having less favorable mortality rates, but its international segment reported favorable rates.
I've been expecting Phoenix to lose to the market since earlier this year when I rated it to underperform on CAPS, and though I generally got it right, its recent results and the decision to farm out some of its portfolio to other managers no longer makes it a good bet to go against. I'll be closing out my CAPS pick, but you can add the company to your watchlist to see how it performs from here.
Dialing in to growth
Investors who knew where to look could have gotten the inside track on Silicon Motion's blowout quarterly earnings report that had the chip maker beating analyst expectations by $0.17 a share. Last week, Samsung reported record profits and strong sales in its handsets division. Earlier this year, Silicon Motion had been chosen by Samsung to have its high-performance, low-power chips included in its handsets.
The CAPS All-Star community is bullish with 98% of those rating the chip maker thinking it will continue to beat the broad market averages. Tell us on the Silicon Motion CAPS page or in the comments section below where investors should next look for SiMo's growth opportunity, then add it to your watchlist to see how it plays out.
Brewer Boston Beer also reported better than expected earnings yesterday, outpacing Molson Coors (NYSE: TAP ) , which disappointed the market as it blamed high unemployment rates for discouraging drinkers from tippling at the bar. While that undoubtedly plays a role in results, you'd think a premium-priced beer like Samuel Adams would be affected much worse yet Boston Beer actually saw just the opposite.
Depletions, an industry metric that measures distributor sales, grew 11%, nicely ahead of the 8% growth it's seen year to date, and 7% shipment volume gains. Even with its Freshest Beer Program draining $0.02 per share from results, Boston beat estimates by $0.11 per share. The just-in-time Freshest Beer Program costs the Samuel Adams brewer money upfront in reduced inventories, but saves money in the end as it seeks to reduce the amount of time its beer sits on wholesalers' shelves.
Boston Beer has the benefit of being positioned in the hot craft brew market rather than the mass-production processes of Molson Coors. According to the U.S. Brewers Association, beer sales have been flat, but craft brew sales are up 15% in the first six months of 2011. That might have more to do with the disparate results than the economy, particularly since alcohol consumption is supposed to go up in a recession, no?
They produce beers that are "gateway" beers to the craft side of the house while keeping those already in the fold happy with their diverse (yet high quality) offerings. Add to this a pretty strong balance sheet and it's one of the picks I simply can't bet against!
Add Boston Beer to the Fool's free portfolio tracker if you'd like to see if it can brew up additional opportunities in the future.