Stocks Shaking the Investment World

Some stocks are one-hit wonders, making a big splash when they first appear, then quickly fizzling into obscurity or oblivion. But for other stocks, that initial big move is only a preview for even bigger and better gains to come.

Today, we've listed a pair of stocks that made some of the biggest upward moves over the past month, despite the incredible volatility in the market, which we'll pair with the ratings issued by our Motley Fool CAPS community. The higher each stock's rating, the greater CAPS members' faith in that company's ability to keep on beating the market.

Stock

1 Month   % Change

CAPS Rating

Hovnanian (NYSE: HOV  ) 90.6% *
E-Commerce China Dangdang (Nasdaq: DANG  ) 81.3% *

Source: FinViz.com; 1 Month % change from Dec. 19 to Jan. 20

While you were out, the markets rebounded, but they may turn tail again if Europe's fragile financial system falls apart. So before we get shaken out again, let's see why the CAPS community thinks some of these companies might continue to outperform the market.

An end to the bust?
There are a lot of fingers crossed hoping the housing market is finally building a better future for itself. Following the burst bubble, homebuilders such as Hovnanian, KB Homes (NYSE: KBH  ) , and Pulte Homes have been left as shells of their former selves. But in 2012, the sector has gotten off to a nice start from encouraging data. Hovnanian's stock is up 67%, KB is 38% higher, and Pulte rose 23%.  Almost all builders posted double digit gains.

The National Association of Home Builders survey for January, for example, rose four points to 25, marking its highest level since before the collapse, while November starts were well above consensus estimates. As builders worked off excess inventory, they've limited the number of new homes built, so a stronger starts number suggests they're ready to grow again.

Hovnanian scored the best returns of the three as its losses narrowed in the fourth quarter even as it bought up more land, but KB is seeing deliveries and orders improving too. Yet the builders may be flexing their muscles a little too early, as there is still a large overhang of foreclosed homes on the market. Filings may have dropped 14% in November, but don't forget that Fannie Mae and Freddie Mac initiated a moratorium for the holidays. According to the industry analysts at RealtyTrac, there are still some 14 million distressed homes out there.

I rated Hovnanian on CAPS to underperform the market last month after shares soared on improved housing-starts news. The stock has continued to climb since then, but I'm still of the opinion it's much ado about nothing, or about not enough anyway, to justify the lofty levels it's trading at, and I'll maintain my underperform rating.

With over 1,000 other CAPS members also weighing in on the builder, it's notable that well over half agree it's too much, too soon. But tell us on the Hovnanian CAPS page or in the comments section below if you think it will build a future for itself, then add it to My Watchlist to see if it really is a house of cards.

Overseas expectations
Chinese online retailer E-Commerce China Dangdang is another stock I've marked to underperform because it seems to be too much of a me-too idea. Starting off as a bookseller, just as Amazon.com (Nasdaq: AMZN  ) , it has been hawked as China's answer to the e-tailer. Then it broadened its wares for sale -- just like Amazon! -- and suddenly the wheels are coming off the express.

Following in the footsteps of the successful launches of Amazon's Kindle and Barnes & Noble's Nook, Dangdang will be introducing its own branded e-reader sometime this quarter. But costs are rising at a faster pace than sales, and with competition fierce in the markets it's targeting, the erosion of margins already witnessed are likely to get worse. The broad losses it reported last quarter will only deepen. Shanda (Nasdaq: SNDA  ) already has a popular e-book reader on the market, the BamBook, so it won't be as simple for Dangdang as simply introducing its own reader to make a mark.

While 70% of those CAPS members rating Dangdang think it will beat the Street, All-Stars are nearly evenly divided. Add Dangdang to My Watchlist and tell us on the E-Commerce China Dangdang CAPS page if you think it will eventually turn the page on losses and live up to the hype.

Shake, rattle, and roll
These two stocks shook the market this past month, but the Fool has found one company that's digging up massive profits and is likely to continue to do so if the markets become rattled. Roll on over to get your free copy, but hurry, because it's available only for a limited time.

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 Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2012, at 1:03 AM, somethingnew wrote:

    With all due respect, marking dang as an underperform based strictly on it being a "me too" idea would probably be an over all bad strategy to use in China for evaluating whether a company will perform or not. If that were the case then Baidu, who copied Google heavily, should have done terribly over the years. Also Tencent should be dead in the water based on that philosophy but are one of the highest capitalized tech companies in China and are notorious for copying off of everyone. That said, I do agree dang is an underperform all the way. I bought a tiny amount of shares in this company and realized my mistake months ago as Chinese dot coms started undercutting each other left and right as competition heated up. I'd sell if I had a substantial stake but I don't. At this point I realize it is an absolute coin toss on whether they will ever be profitable or not and the recent run-up in price is ridiculous.

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