Whoa! These 2 Stocks Beat the Dow

The markets moved higher Tuesday as traders apparently think China can endlessly stimulate its economy without repercussion, but the government's own news outlet, Xinhua News Agency, says there aren't any plans for another massive stimulus in the works. That ought to make the traders gloomy again.

Yet some stocks were going even higher Tuesday, strapping on rocket packs and turning in double-digit percent increases. Resist the urge to high-five everyone in the cubicles next to you, though. Smart investors won't celebrate until they know why their stock surged, because without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Getting left back
Analyst opinion can change on a whim, and while Fools will generally ignore their game of buy-sell-hold, it's nonetheless true that their prognostications can still move a stock. Chinese cell-phone-chip designer Spreadtrum Communications (Nasdaq: SPRD  ) was the beneficiary yesterday of a JPMorgan analyst's upgrading the stock from neutral to overweight (can there be terms any more nebulous than that?) and raising his price target almost 50% to $22 a share.

After being weighed down by other analysts' opinions seeing the chip maker losing market share, Spreadtrum was able to embarrass them with better-than-expected earnings and new guidance that was more upbeat. Of course, part of the gloom was Spreadtrum's own dour outlook earlier in the year, but China Mobile (NYSE: CHL  ) , its biggest customer and China's biggest wireless provider, has selected Spreadtrum's chips for two of its new smartphones and all three of its new feature phone designs.

The day before analysts at Nomura raised their rating on it for similar reasons, but I'm not convinced yet Spreadtrum is the buy the analysts say it is. The chip maker has previously said margins will be pressured as the year wears on, and while China Mobile is Asia's biggest wireless company, China Unicom (NYSE: CHU  ) is rapidly closing the gap in 3G technology with some market researchers contending its 3G subscriber base could surpass China Mobil's by next year. Unicom has 49 million 3G subscribers; Mobile, 60 million. Moreover, Unicom uses the global WCDMA standard while its rival uses a proprietary network.

The lead and the benefit of Spreadtrum's aligning itself so closely with China Mobile may soon dissipate. Yet CAPS member xBubbaGumpShrimp thinks just the size and market opportunity will allow Spreadtrum to outperform: "China has a growing market for smart phones and will continue to grow," presumably even if China Mobile becomes the No. 2 player in 3G.

You can add the Chinese chip maker to your Watchlist as well as tell me in the comments section below or on the Spreadtrum Communications CAPS page if you think there's room enough for many players to win.

Credit where it's due
It pays to speak up. When Vaalco Energy (NYSE: EGY  ) unveiled a proxy statement earlier this year that allocated 5 million restricted shares to management as part of their long-term compensation, independent proxy firm Institutional Shareholder Services objected to it because the shareholder value transfer, as determined by ISS, was greater than its company-specific allowable cap.

You have to give credit to Vaalco's management, who responded specifically to this unfavorable recommendation and lowered the number of shares to 3 million. The board also changed the definition of when a change of control in the company occurs from being approved by shareholders to the deal actually being consummated. Considering they could have dug their heels in on this, Vaalco's board is to be commended and the market responded by sending its shares 13% higher.

Vaalco has been plying the waters off Africa's west coast for some time and was recently granted an extension by Angola to find a partner (it believes it may have found one) and further explore its options in the Kwanza basin. It also received an extension in Gabon where it's working with Total (NYSE: TOT  ) after signing up for a third exploration period. A well is expected to start drilling later this year.

CAPS member TheAccidentOf85 says it needs to go beyond Gabon before it will be able to achieve the growth that is expected: "This stock is cheap and I think it stays cheap for a while. Growth needs to happen outside Gabon for this stock to take off. Buy the dips and sell the rips on this one for a bit."

Add your opinion to the Vaalco Energy CAPS page if you think its exploratory efforts will pay off, then add it to your watchlist to see if the extensions it's received give it enough time.

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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Total. 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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