The Dow Jones Industrial Average rallied sharply higher yesterday, closing above 13,000 again as earnings looked better for a number of businesses. But even if you own the stocks below that strapped on rocket packs and went even higher, 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 Dow soared 194 points, or 1.5%, so stocks that went appreciably higher are pretty big deals. But let's see whether they're truly headed into orbit.
CAPS Rating (out of 5)
|Swisher Hygiene (Nasdaq: SWSH )||*||19.6%|
|Denison Mines (NYSE: DNN )||*****||18.9%|
Source: Motley Fool CAPS.
Flushing it down the tube
After announcing a few weeks ago that it was delaying filing its annual report to investigate possible accounting problems that would likely result in its restating its financials for the past year, Swisher Hygiene saw its stock suddenly surge 20% on no news. Shares had fallen by as much as 67% since the March 28 announcement that it was looking into how it accounted for acquisitions and allowances for doubtful receivables.
Swisher is a hygiene and sanitation solutions company selling everything from soap and toilet paper to solid waste collection and manual cleaning of facilities. In growing from a restroom cleaning service to a full-service solutions provider, Swisher has made over 100 acquisitions. Perhaps its most notable attribute is that it's run by Wayne Huizenga and Steve Berrard, partners who've worked together at Blockbuster and AutoNation. Huizenga was also behind the growth of Waste Management, and you can see those fingerprints all over Swisher today.
But growth by acquisition is fraught with danger. It becomes increasingly more difficult to digest all the purchases made, and goodwill accounting becomes an issue. It was definitely something to watch at Swisher. A year ago, CAPS All-Star NajdorfSicilian predicted the failure of its roll-up strategy, and there was a lot of doubt expressed on CAPS, where members were nearly evenly split on whether it would be able to outperform the market indexes.
A restatement isn't necessarily a death knell for a company, but add Swisher to the Fool's free portfolio tracker and tell me in the comments section below or on the Swisher Hygiene CAPS page whether you think this sanitation company is going to remain in the toilet.
Sprucing up the place
Analysts think uranium miner Denison Mines is positioning itself for a takeover. By selling all of its U.S. assets to Canadian miner Energy Fuels, it rids itself of what an RBC Capital Markets analyst termed a "poison pill" defense against an acquisition.
Moreover, it got rid of the assets at what could be considered fire-sale prices, as analysts had valued them at two to three times the $106 million in stock it sold them for. Equally interesting is that it sold the mines to such a small company: Energy Fuels has just a $50 million market cap on the Toronto exchanges.
After a long period of decline, the uranium markets are looking up again, with uranium prices expected to rise as high as $85 a pound by 2014 from their $52 level today. That would make low-cost producer Cameco (NYSE: CCJ ) a more attractive stock, as its shares are down 24% year over year and down more than 30% from their highs. Both Cameco and Denison have rebounded somewhat this year, as Denison was already up 14% before yesterday's move.
So with that in mind and the prospect of a forthcoming takeover likely, I've rated Denison to outperform on CAPS, joining the vast majority of All-Stars weighing in on the miner, who also look for it to beat the market averages.
Add Denison Mines to your watchlist to be notified right away if someone makes a move on the company.
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 report, "Discover the Next Rule-Breaking Multibagger," is available for a limited time only.