Whoa! What Just Happened to These Stocks?

Europe once again was the catalyst for the Dow's fall yesterday, as it's become virtually guaranteed that Greece will leave the eurozone. Although it's hoped the exit will be an orderly affair, the probability it will turn messy is high, and then comes the possibility that Spain or Italy -- or both! -- will follow Greece out the door.

While the stocks we'll discuss today 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.

Such a deal
At first glance, it looks like daily-deal specialist Groupon (Nasdaq: GRPN  ) had a one-off quarter where it was able to post its first-ever quarterly profit, albeit just a penny. Yet looking more closely, it seems as though it was able to actually carry through on its promise as North American business jumped 33%. Whether this is the new reality remains to be seen, but shares of the coupon service are surging ahead today as short sellers were probably caught flat-footed and are now suffering from a squeeze.

After yesterday's 18.5% gain, shares are up another 3% today. But don't let that sway you: The daily-deals leader still sells for far below its $20 IPO price.

Previously I rated Groupon on CAPS to underperform the market, and it has, but I'm not changing that outlook despite the seemingly impressive performance. It's still trying to get control of its accounting problems, and guidance for next quarter suggests there could be a revenue slowdown coming. It posted $559 million this quarter but says sales could come in as low as $550 million in the second (of course, they could go as high as $590 million, too).

Moreover, there is still a lot of competition in an industry that has no competitive moat whatsoever, as CAPS member Sophos2 points out. ReachLocal (Nasdaq: RLOC  ) , Local.com, even Google offer daily deals, and there's just a lot of anecdotal information out there that businesses signing up for a Groupon deal will either not make the money promised or will be swamped by customers only wanting that single discount. Stickiness has not been a hallmark of Groupon's driving customers to a company.

Add Groupon to the Fool's free portfolio tracker, and tell me in the comments section below or on the Groupon CAPS page whether you think as I do that there's nothing to set the wheeler-dealer apart from the competition.

A meal fit for a king
The earnings report alt-fuel producer KiOR (Nasdaq: KIOR  ) put out yesterday didn't show that it made any money last quarter, but the biomass-fuels specialist said it got one step closer to being able to actually produce something, which was enough to send its stock jumping 10% higher.

KiOR is among a growing list of alternative-fuel companies that went public in the past year trying to capitalize on what was then rising investor sentiment to combat high oil prices. While oil's price is still elevated, at around $95 a barrel it's not so heady as it once was. The prospects for Solazyme's (Nasdaq: SZYM  ) algae-based fuels are less than they once were, and Rentech (NYSE: RTK  ) has been flogging biomass fuels for a while without much success.

However, KiOR is using a joint venture by Chevron and Weyerhaeuser to provide all of the pulpwood, whole tree chips, and forest residuals it will need to get its production facility going, and now that it's built -- the reason for the frothy jump yesterday -- KiOR expects to commence production in the next few months. KiOR says it can achieve an unsubsidized production cost of under $1.80 per gallon.

I rated KiOR to outperform the broad market averages on CAPS last summer, and until there's proof it can back up its claims, I don't plan on changing that forecast. While just over half of those CAPS members rating the alt-fuel specialist think it can beat the Street, the low one-star rating they've assigned it belies their confidence.

Let us know on the KiOR CAPS page whether you think fuel from wood chips is a good long-term alternative, and then add it to your Watchlist to see whether it gets chopped down.

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 Weyerhaeuser, Solazyme, and Google. Motley Fool newsletter services have recommended buying shares of ReachLocal, Google, and Chevron. 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.


Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 16, 2012, at 3:04 AM, lanceim59 wrote:

    Judging by KIOR's poor caps rating(a pathetic 1 star), looks like the majority of the Caps Community believe SZYM(4 stars) is the better biofuel company. This is just another useless Motley Fool article.

  • Report this Comment On May 16, 2012, at 12:00 PM, GUVF wrote:

    "The prospects for Solazyme's (Nasdaq: SZYM ) algae-based fuels are less than they once were"

    Please explain this comment. You make this disparaging statement but provide no explanation. What news or information are you using to decide that their "prospects are less than they once were"? They appear to be executing their plan beautifully with remarkably few hiccups and a few surprise "wins" (i.e. success of Algenist, Dow agreement, etc...). Not sure why you believe their prospects have diminished.

  • Report this Comment On May 16, 2012, at 11:01 PM, seattle1115 wrote:

    I want to echo GUVF's comment. The author has made a rather brazen assertion here that demands some explanation, I think.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1888023, ~/Articles/ArticleHandler.aspx, 10/1/2014 6:30:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement