You saw the headlines. You know your stock price made a big move. But what does that portend for your investment's future?
By pairing the latest news with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, we might be able to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
These two stocks both made big moves over the past five trading days, one up, one down:
|
Stock
|
CAPS Rating (out of 5)
|
Change Past Week
|
| Nevsun Resources (AMEX: NSU ) |
**
|
(32.9%)
|
| SmartHeat (Nasdaq: HEAT ) |
***
|
32.7%
|
Source: Motley Fool CAPS, % Chg. from Jan. 6 to Jan. 13.
72 inches down
When you announce you're going to cut gold production by as much as 50% for the coming year, there's bound to be a little fallout. Nevsun Resources did that the other day for its Bisha gold mine in Eritrea, and while it couched the change in terms of preparing for copper production with even further revised guidance later in the year, it's all because it overestimated its reserves last year, both in terms of tonnage and grade.
Revising resource estimates is not unheard of when it comes to mining. When the numbers are dialed back, as happened to Rubicon Minerals (AMEX: RBY ) at its F2 gold-mining project in the prolific Red District region of Ontario, the results are similar to what Nevsun reported: a crushing blow to the stock. When the revisions jump, as when Rare Element Resources (AMEX: REE ) suggested it might find higher grades of ore than previously thought for its Bear Lodge project, the stock can become a rocket.
Yet the initial market reaction might actually be an overreaction. If you believe management -- and it is suffering from a little credibility crisis today -- the tonnage revision is only a 4% reduction. But the biggest problem may be the grade of the ore, as it is only about half as good as what was previously produced. Great Panther Silver (AMEX: GPL ) also has been hampered by the degradation of average ore grades it's pulled out of the ground since last year. But it seems Nevsun has become a copper play rather than a gold play.
CAPS All-Star member Humle100 believes the sell-off was overwrought, but you can tell us on the Nevsun Resources CAPS page or in the comments section below if you think the risk profile has significantly increased. Add the gold (copper?) miner to your watchlist to be alerted when the new resource estimates are released.
Heating up
When you first look at the charts showing SmartHeat's gains, it looks like the stock flew up some 1,200%, but that should immediately ring a bell that something's not right: In reality, the Chinese plate heat exchanger manufacturer engineered a 1:10 reverse stock split, which moved the stock up from less than $0.50 a share to almost $5 a stub.
Reverse stock splits typically signify a company in financial trouble, and SmartHeat is just that. More than a year ago, I warned investors that it had a penchant for diluting shareholders and was experiencing huge spikes in receivables that didn't correspond with the reported growth in sales. Last quarter, sales were cut by two-thirds while operating expenses actually more than doubled as bad debt expenses rose exponentially.
With 93% of the 490 CAPS members weighing in on SmartHeat believing it will go on to beat the broad indexes, it seems they're willing to wait for it to heat up again. Add SmartHeat to the Fool's free stock tracker, and let us know in the comments section below if it will exchange its new higher value for a lower one again in the near future.
Read all about it!
Both of these stocks made a lot of noise this week, but The Motley Fool has identified one company that's breaking all the rules on its way toward delivering multibagger gains. You can get instant access to this company by clicking here -- it's free! But only for a limited time, so hurry.
RSS Headlines
Fool UK