Whoa! What Just Happened to My Stock?

Not only has Italy's financial system brought its government to the brink of collapse, but the European Union, too. Not surprisingly, the markets panicked Wednesday. 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 hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating (out of 5)

Wednesday's Change

KIT Digital (Nasdaq: KITD  ) ** 34.1%
Gentiva Health Services (Nasdaq: GTIV  ) **** 17.4%
Barnes & Noble (NYSE: BKS  ) * 13.7%

With the markets rising 389 points Wednesday, or 3.2%, stocks that went appreciably higher are pretty big deals.

Shining a light on growth
My father used to tell me that it's not what you say but how you say it that makes the difference. Netflix (Nasdaq: NFLX  ) learned that lesson firsthand when it bifurcated its revenue streams between rent-by-mail and streaming video. No one could quibble with the movie rental king's belief that the DVD is a dying format, but the manner in which it went about conveying the change -- and the price hike that went along with it -- rightly caused the market to smack it down.

The growing importance of streaming video can be seen in the third-quarter report of KIT Digital, a maker of on-demand software that helps companies manage and distribute video over the Internet. It lets clients from Disney (NYSE: DIS  ) to The Knot acquire, manage, and distribute video across various platforms, whether it's personal computers, IP-enabled televisions, or mobile devices.

It swung to a profit this quarter that easily surpassed analyst expectations, and projected earnings for the full year also came in well ahead of forecasts.

CAPS member Clu11 recently pointed out that KIT has been adding clients and was forecasting being free cash flow positive by next quarter. With what seems like a good management team, the video manager will run higher, he believes: "This restructuring has been named 'Project Delta' which is estimated to eliminate 35 million dollars of total costs from the business on an annualized basis. Finally, after a brief search of Kit digital's CEO, Kaleil Isaza Tuzman, my general impression is that he seemed energetic and shows many traits of a good leader."

I'm going to be closing out my own underperform rating on KIT with a small gain now that it seems to have worked out the kinks in its business. Add KIT Digital to your watchlist to see if it remains on this profit-making path.

Still has a pulse
The home health-care market certainly looks like it's on its deathbed. Under the microscope of Justice Department and SEC investigations, backed against the wall of Medicare reimbursement cuts, and facing greater regulatory hurdles to scale, it's no wonder Gentiva Health Services, Amedisys (Nasdaq: AMED  ) , and other care provides are reporting disappointing results.

Last week, Gentiva reported earnings of $0.27 that widely missed analyst expectations of $0.48 a share. With no positive changes on the regulatory or criminal probe landscape, why the rise in price, not just Wednesday but all week long? The stock is up 48% from Friday's close.

Turns out insiders are buying up stock. The CEO, CFO, senior VPs, and directors made purchases this week, roughly $1.2 million worth in total. While Gentiva's shares are still down 80% for the year, it seems management thinks the worst is over and will be going up from here. CAPS All-Stars would agree, as 96% of them have rated the home health-care provider to outperform the market averages.

Tell us on the Gentiva Health Services CAPS page or in the comments section below if you agree this is the time to buy up its shares, then go and add it to your watchlist to see how it plays out.

Book smart
Investors in bookseller Barnes & Noble were undoubtedly pleased with the launch of the Nook Tablet, a $249 device that is only slightly more expensive than the Amazon.com (Nasdaq: AMZN  ) Kindle Fire but half the price of low-end iPads from Apple. With the Nook promising better performance than the Fire, there is still the focus on books, obviously the company's mainstay.

Good thing, because the physical book business is facing some tough times. With 1 in 10 U.S. households estimated to own a tablet or e-book reader, Digitimes estimates e-book reader shipments will grow 31% this year to 28.9 million units.

Yet there's plenty of risk, too. In addition to the Fire's lower price possibly attracting more price-sensitive shoppers (with the two companies dropping the prices of their lower-end units as well), Barnes & Noble is also embarking on a course of becoming more like Amazon, selling everything from cooking utensils to household goods online. There may be some synergies in selling a spatula along with a cookbook, but branching out too far afield into home goods dilutes what should be the bookseller's focus: books.

The price war has CAPS member divinezone doubtful Barnes & Noble will be able to turn the page on this difficult period.

Unfortunately, it just cannot compete with other e-readers, which are taking over the game. Price slashing will take its toll, the Nook will fail to impress, and B&N will suffer greatly. I hope I'm wrong, but this is how I see it.

Add the bookseller to the Fool's free watchlist if you'd like to see if it can read the future.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple and KIT digital. Motley Fool newsletter services have recommended buying shares of Walt Disney, Amazon.com, Netflix, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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 November 11, 2011, at 12:52 PM, foolindeed1 wrote:

    Author clearly doesn't understand the state o the current eReaders market. Nook Simpletouch from Barnes & Noble is clearly better and more advanced that any new Kindle (better battery life, 80% leas flashing, 25% faster page turns) at $99 without ads against Kindle Touch for $139 without ads while Nook Tablet makes Kindle Fire look like a Leappad.

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