The market has traded in a flat range since the year started, but yesterday took a large tick upward, although not everyone went along for the ride. So just because your stock strapped on a rocket pack and went 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 two stocks that just hit the afterburners and see whether they're truly headed into orbit.
CAPS Rating (out of 5)
|American Superconductor (Nasdaq: AMSC )||***||27.6%|
|Suntech Power (NYSE: STP )||**||15.3%|
Source: Yahoo! Finance.
The Dow jumped almost 100 points yesterday, or 0.8%, so stocks that went appreciably higher are pretty big deals.
When you're hot, you're hot
There was no company-specific news that should have caused American Superconductor to jump as it did yesterday. Perhaps it was related to the lawsuit it has in China against its once-biggest customer, Sinovel, which stands accused of dealing in trade secrets.
After Sinovel suddenly stopped accepting shipments from its American supplier, it was revealed that an employee had been feeding the Chinese company with inside knowledge of American Superconductor's technology. Sinovel then turned around and started making its own but has since been accused of engaging in corporate espionage. Foreign companies typically don't launch lawsuits in China because they typically receive short shrift, so the lawsuit is something of a novelty.
While analysts expect American Superconductor to still double its revenues this quarter as it diversifies its client base, the wind-energy business is stuck in the doldrums. Zoltek is down by nearly half from its 52-week highs, Power-One (Nasdaq: PWER ) has lost 60% of its value, and Satcon Technology now trades for just pennies a share.
American Superconductor has always had something of a loyal investor following, which helps explain why 87% of the 815 CAPS members rating the wind power specialist still believe it will outperform the broad indexes.
Solar power is another alternative-energy sector that's been clouded by doubt. As global subsidies have been cut, solar shops have fared just as poorly as, if not worse than, their wind-energy counterparts. LDK Solar (NYSE: LDK ) and Suntech Power are down 60%, while First Solar (Nasdaq: FSLR ) is off 70%.
LDK and First Solar got a decent boost the other day, when the German market showed installations had been well ahead of expectations by a factor of 2. Moreover, the buoyant nature of the achievement really helped Suntech shine yesterday, but I don't expect it to last. While a German minister was on record saying the market was growing "too fast," suggesting things were still hot in solar, it seems it had more to do with everyone trying to beat the subsidy-cut deadline and thus pulled sales forward. Indeed, the shares gave back all their gains in today's trading.
But with more than 4,300 CAPS members weighing in on the solar specialist and 96% of them saying it will beat the Street's expectations, I'm obviously going against the crowd by marking it to underperform the indexes.
Tell me in the comments section below or on the Suntech Power CAPS page whether you agree or why you want to rain on my parade of negativity. Then add the stock to your watchlist to see how it all plays out.
Going into orbit
These companies may have divergent futures despite their short-term bounce, so check out for free two companies the Motley Fool thinks have a can't-fail future. Hurry, though, because the free look is available for a limited time only.