No one should be surprised that Europe's economy really isn't fixed. The Band-Aid of the Greek rescue has stanched the flow, and the evidence was seen in Spain's debt auction that failed miserably. Here at home, a disappointing ISM services index report showed a still-weak domestic economy. While the stocks below may not have strapped on rocket packs, they did manage to buck the trend.
Even so, resist the urge to high-five everyone in the cubicles next to you. Smart investors won't celebrate until they know why their stock surged. 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? The markets tumbled 125 points, or 1%, yesterday, so stocks that went appreciably higher are pretty big deals. But let's see whether they're truly headed into orbit.
(out of 5)
|Keryx Biopharmaceuticals (Nasdaq: KERX )
|E-Commerce China Dangdang (Nasdaq: DANG )
Setting sights on growth
Maybe it's something of a "dead cat bounce" that Keryx Biopharmaceuticals -- and partner AEterna Zentaris, for that matter -- managed to score gains when the rest of the market fell. The dead cat theory is that when thrown from a high enough point, the carcass will bounce when it hits. And fall the biotechs did.
Both Keryx and AEterna lost more than 60% of their value when they reported that their cancer-fighting therapy perifosine did no better than a placebo and the future of the drug was in doubt. Small-cap cancer companies don't have an enviable record with their drugs -- they're about zero-for-60 -- but my ever-optimistic colleague thinks that for AEterna, at least, there may be life after death because of its pipeline.
The same really can't be said for Keryx, which only has one drug to fall back on: Zerenex, a drug to help with certain conditions related to end-stage renal disease that's in late-stage trials in both the U.S. and Japan. It now becomes an all-or-nothing situation if they ultimately choose to kill off perifosine.
Biotech investing can be profitable, but I'd rather stick with the likes of Amgen, which became the first biotech to start paying a dividend back in July (and hiked it 29% before the year was out), than riskier plays like Keryx or AEterna.
Add Keryx to the Fool's free portfolio tracker to see if it will keep bouncing, and then tell us in the comments section below or on the Keryx Biopharmaceuticals CAPS page if there's more life left in it.
The reason I'm wrong...
...and the Fool's CTO, Jeremy Phillips, is right about E-Commerce China Dangdang, the "Orient's Amazon," is because I was only looking at one part of the investment equation.
Let's back up here. When the e-commerce platform broke onto the market last year, it was hyped just like all the other me-too operations, and that was an initial turn-off. But as fast as its revenues were growing, its expenses were growing even faster, and it was a money-losing operation. That's about where the analysis for me ended, and I rated it to underperform the market indexes.
It was a good call as it fell from over $12 a share all the way down to $4.40 at the end of the year. Since then, however, it's more than doubled in value, and this is where Jeremy's analysis comes into play.
Unlike Renren (China's Facebook!) or Youku.com (China's YouTube!), Dangdang positions itself close to a consumer's wallet. Social networking and video streaming aren't the primary moneymakers for Renren or Youku, but e-commerce is Dangdang's bread and butter. It really is following Amazon.com's playbook of growing market and mind share at the expense of profits for the time being.
As investors had to with Jeff Bezos, you'll need patience for this strategy to pay off. Being leery of most Chinese investments, I'm not sure I'm ready to commit real dollars to Dangdang, but Jeremy's spot-on analysis has certainly convinced me to close out my underperform rating (with more than a few points' gain!) and switch it to a thumbs-up.
CAPS member Suiname believes Dangdang has an added advantage in that Amazon's site is blocked in China, so it has no significant competitor to face.
If you could go back in time and buy Amazon under 10$, you would do it in a heartbeat right? Well, guess where Amazon is banned? If you said China, you are correct. Guess who does exactly what amazon does, but isn't banned? DANG!
Read up on the Web store on the E-Commerce China Dangdang CAPS page and tell us if you also agree with Jeremy's analysis, and then add it to your watchlist to see if it turns profitable sooner rather than later.
Going into orbit
These two companies may have divergent futures despite their short-term bounce, so check out for free the one stock the Motley Fool thinks will break all the rules to win. Hurry though, because the free look at the new report, "Discover the Next Rule-Breaking Multibagger," is available for a limited time only.