Whoa! These Stocks Head-Faked the Market

The Dow Jones Industrial Average recorded its second down week in a row as prospects that the Federal Reserve will continue to prop up the market faded. The following stocks strapped on rocket packs and went even higher, but 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 fell 137 points, or just over 1%, on Friday, so stocks that went appreciably higher are pretty big deals. But let's see whether they're truly headed into orbit.

Stock

CAPS Rating (out of 5)

Friday's Change

Sunesis Pharmaceuticals (Nasdaq: SNSS  ) ** 10.1%
Quepasa (AMEX: QPSA  ) * 8.7%

Chipping away at doubt
It's building up through a series of small positive developments, but Sunesis Pharmaceuticals is either going to rocket much, much higher or come crashing back to earth. Shares of the biotech are 43% higher than they were a year ago but are up 160% in 2012 alone.

Earlier this year it received from the U.S. patent office a "Notice of Allowance" related to compositions used in its experimental leukemia drug vosaroxin that would provide exclusivity for Sunesis till 2030. It then announced a $25 million royalty agreement with privately held Royalty Pharma, based on outcomes of vosaroxin's trials, and then last week the analysts at Cantor Fitzgerald upped their price target on Sunesis to $6 a share.

With an upcoming biotech conference and collaborative agreements with Millennium Pharmaceuticals and Biogen Idec (Nasdaq: BIIB  ) and a good pipeline to build on, there's a lot of buzz being generated for the leukemia-drug maker.

CAPS member naughtyguy thinks that the string of positive press has pushed the stock up too high and that it's due for a correction, but pchop123 believes the good news is a hopeful sign for the future. Add Sunesis to the Fool's free portfolio tracker, and tell me in the comments section below or on the Sunesis Pharmaceuticals CAPS page whether you think this has been too much of a good thing or just the start of better things to come.

Remember this
Here we go again -- another article about Facebook's IPO leads to speculation that it will buy out the Latino social-networking hub Quepasa, which will soon be rechristened MeetMe. The Chinese version of Facebook, Renren (Nasdaq: RENN  ) , was up 7% on Friday as well, so the two seem to enjoy these spikes as the IPO nears and investors tender fanciful thoughts.

What got their juices flowing this time, though, was Facebook's spending spree, first throwing $1 billion at Instagram and then on Friday buying Tagtile, a customer-loyalty application. What investors should see is that Facebook is building up its own brand with these acquisitions, not looking to take on me-too operations. If anything, a bid for LinkedIn would make more sense, as it would give the social-networking site a professional edge rather than just "more of the same."

But when jumps in price are associated with little more than hopes and dreams, the end result is usually dashed expectations and diminished returns. I'm marking Quepasa on CAPS to underperform the market because of the ephemeral nature of why it's trading higher. Just one-third of the All-Stars weighing in on the "Latino Facebook" think it will beat the Street, so add it to your Watchlist to see whether it says "adios!" to its recent gains.

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.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of LinkedIn. Motley Fool newsletter services have recommended buying shares of LinkedIn. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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