Whoa! 2 Stocks Embarrassing the Dow

Only those wanting to believe in the fairy tales coming out of Washington would have believed the employment picture was improving. Instead, the massive number of people who have given up on looking for work is partially to blame for driving the unemployment rate down. The real reason for the Dow Jones Industrial Average tumbling 168 points, or 1.3%, on Friday, was that the labor force participation rate -- the number of people actually still working -- dipped to 64.8%, the lowest level since 1981.

While the stocks below 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.

Swimming with the tide
After Spreadtrum Communications (Nasdaq: SPRD  ) doused investors with cold water back in March with a dour first-quarter outlook, the Chinese wireless-chip-maker's earnings report hit the midpoint of those lowered expectations. But the market is a forward-looking mechanism, and the cellphone-chip designer offered up new guidance for the second quarter that was ahead of Wall Street's forecasts. Moreover, it's moving into 3G technology faster than previously expected and is said to have scored more than 200 design wins in Android smartphones.

China Mobile (NYSE: CHL  ) is one of Spreadtrum's biggest customers, and the company recently revised chip sales downward due to a slowing Chinese economy. However, Spreadtrum now expects to ship more than 1 million units of its smartphone platform in the second quarter with as many as 20 million shipped for the full year. Both numbers reflect better-than-expected demand.

Yet there's still fear that China might not be the robust market many envisioned, and this year China's growth could dip to a level not seen since 2004. With Europe on the verge of imploding and the U.S. still walking along the precipice, the world's largest exporter is going to have difficulty locating markets for goods at the same rate as recent years. I'm still a believer in the hard-landing theory.

With margins expected to narrow as the year progresses, I'm calling for Spreadtrum to underperform the market indexes on CAPS. Still, xBubbaGumpShrimp thinks China is only just getting around to the latest wireless technology, and Spreadtrum could have more growth left in it.

Add the chip designer to the Fool's free portfolio tracker and tell me in the comments section below or on the Spreadtrum Communications CAPS page if you agree the results are disconnected from reality.

Eye in the sky
The two main players in global digital imaging are about to get nasty with each other. GeoEye (Nasdaq: GEOY  ) went public with its hostile bid to take over bitter rival DigitalGlobe (NYSE: DGI  ) with a $792 million offer, which the latter rejected. As a matter of fact, DigitalGlobe says that right after the government decides on its EnhancedView program, it's going to turn around and make an offer for GeoEye.

DigitalGlobe went even further and said its rival is desperate. Although tough talk is not uncommon during such episodes, DigitalGlobe says federal government budget cuts have it worried about where its next meal is going to come from and it needs to make the bid to shore up its business.

To be sure, GeoEye relies upon government largesse for almost two-thirds of its total revenues, while another 26% came from international customers, primarily foreign governments. Yet GeoEye has certain capabilities that DigitalGlobe doesn't that could be viewed as a competitive advantage. It offers advanced processing capabilities derived from owning three airplanes equipped with advanced imaging technology, and DigitalGlobe doesn't own any such aircraft.

But DigitalGlobe points out that GeoEye also suffers from lower quality as evidenced by the large number of "holdbacks" -- when a company gets docked for not meeting specifications -- that it gets flagged for in its contracts. While DigitalGlobe had one such holdback, GeoEye has had several and they've been 20 times as large as its own.

Fears of government cutbacks have weighed on DigitalGlobe's shares too, and its stock is down 44% from the highs it hit last August. With competition from aerial imagery providers as well as aggregators of aerial images, including Google (Nasdaq: GOOG  ) and Microsoft, now that there's almost an open bidding war between the two we might see someone else enter the fray. Certainly Google is no stranger to going off on strange tangents, and considering its own space ventures, perhaps satellite imagineering, would fit in too.

It's still a relative unknown on CAPS, but the All-Stars who have spotted it and rated the satellite imaging specialist unanimously believe it will outperform the broad market indexes. Let us know on the DigitalGlobe CAPS page who will end up buying whom in this space, and then add it to your watchlist to get a clear picture of what's going on.

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. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, GeoEye, China Mobile, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not 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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