Whoa! What Just Happened to These Stocks?

The chaos unfolding in Europe didn't sink the Dow yesterday. Since Greece hadn't left the eurozone and sovereign nations were all still standing, it was risk-off time and the Dow was off to the races, jumping 135 points, or 1.1%.

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.

Such a deal
It's been a long way down for mortgage insurer Radian Group (NYSE: RDN  ) ; the stock has been cut in half over the past two months. But it jumped nearly 20% yesterday and is up another 5% or so in morning trading today after one of its largest shareholders, Clinton Group, said it should let the sunshine in on its books or otherwise sell itself: "(O)ur fellow shareholders appear to be skeptical that the company has sufficient reserves against future claims and are worried about the magnitude of future defaults. The best antidote to such skepticism and worries is sunlight."

Radian Group posted its second consecutive quarterly loss earlier this month and said its main mortgage insurance unit, Radian Guaranty, would likely see its risk-to-capital ratios increase in the second half of the year and the amount of capital needed to support the unit could exceed all of its available liquidity.

Mortgage insurers like Radian and Genworth Financial (NYSE: GNW  ) pay lenders when homeowners default on their mortgages and foreclosure sales don't recoup enough of the value lost. Genworth just reported profits well below analyst expectations, leading its CEO to abruptly resign, while PMI Group went bankrupt awhile back as the housing crisis worsened. MGIC Investment (NYSE: MTG  ) has posted seven straight quarters of losses.

The prospect of a sale, however, is raising hopes of suffering Radian investors, and more than two-thirds of the CAPS members rating the mortgage insurer think it can beat the market averages. While CAPS All-Stars are nearly evenly split on its outcome, you can add Radian to the Fool's free portfolio tracker and tell me in the comments section below or on the Radian Group CAPS page if you think someone will be willing to buy this money-losing insurer.

A meal fit for a king
Even more ephemeral might be the 14% gains Frontline (NYSE: FRO  ) enjoyed yesterday along with the somewhat lower price jumps witnessed by other shippers like Overseas Shipholding Group and Diana Shipping (NYSE: DSX  ) . While they've weathered the storm of the collapse in rates for their services caused by the glut of ships on the market, yesterday's surge was due to a confluence of factors that might not stick.

According to the Fool's Joel South, China has agreed to keep pumping money into its economy and EU leaders will try to keep Greece in the eurozone. If China's willing to boost demand and Europe doesn't come apart at the seams, shipping -- both on the oil carrier front and the dry bulk goods market -- might see some growth once again, despite even more ships scheduled to come on the scene.

I just don't think these factors will have any lasting effect. Analysts have been anticipating higher rates for a few weeks now, so I find myself in agreement with CAPS member bIlluminati, who thinks shipping will flounder right alongside these global economies sending Frontline down to Davy Jones' locker.

Frontline has looked in danger of capsizing for some time now, and while many investors believe the industry is moving out of the doldrums, I don't know if I'd give the "all clear" signal just yet. We've seen squalls arise suddenly before, threatening a shipper's ability to stay afloat. But tell us on the Frontline CAPS page if you think it's now full steam ahead, and then add it to your watchlist to see whether it can survive.

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 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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