Blue Chips Have Nothing on These Stocks

Earnings of blue-chip stocks drove the Dow higher midweek, as did a surprising housing report that showed homebuilders began shoveling more new homes than any time in the past few years. While I don't necessarily find that encouraging, some companies managed to go even higher than the market, some even rising higher by double-digit percentages.

But resist the urge to high-five everyone in the cubicles next to you, since 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.

On the up-and-up
The improved housing picture -- or, more properly, the mortgage industry news that also hit the headlines -- helped boost mortgage insurer MGIC Investment. In addition to seeing builders building more houses (which I actually find scary, considering the inventory overhang still out there), mortgage applications jumped 17% from the previous week and refis were up 22%. Building permits were also up from last year, housing starts were higher, and housing completions in June were better than they were in May. Apparently the thinking is that if companies are building, then people are buying, but we've seen the green shoots in housing wilt and die on the vine so many times that I give no credence to the thought that this time will be any different or that MGIC's gains will hold.

Similarly, Riverbed Technology might have been driven higher on the expectation that F5 Networks (Nasdaq: FFIV) would report decent earnings after hours (F5 itself was up 7% on the day), and while it did meet expectations, growth slowed to 16% and guidance suggested that caution was the watchword, with further slowing to come in the fourth quarter.

Analysts have been expecting the entire sector to run into economic headwinds, with customers judiciously making spending cuts. They might still make software buys, but hardware tends to get cut first. I've thought Riverbed's depressed stock made it an attractive buy and rated it to outperform on CAPS, but if its bounce was indeed the result of expectations built into F5's numbers, then we're likely to see the market take back the gift it gave. Share your thoughts on the Riverbed Technology CAPS page.

A clean sweep?
Rounding out the triumvirate of stocks moving higher on no company-specific news is hygiene and sanitation solutions specialist Swisher Hygiene, which really was bounding higher to compensate for its previous plunge -- also on no real news.

Swisher sells 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 more than 100 acquisitions, and despite having to restate its financials because of some fishy accounting problems and being subject to a raft of lawsuits over it. The stock was pretty much in freefall, tumbling from around $5.00 a share down to just $1.50, until the company ousted its CFO and brought someone new in. The stock has rallied strongly since then, jumping 58% since May.

While growth by acquisition is a tactic companies often use, and it's one that will allow Swisher to more effectively challenge much larger rivals Ecolab (NYSE: ECL) and Stericycle, it's still a policy fraught with risk. In fact, it was accounting for its numerous acquisitions that brought on the investigations and lawsuits.

Admittedly, Swisher has behind the scenes the founder of Blockbuster and AutoNation, who successfully pursued a similar growth strategy, and it also suggests the company will be able to clean house. But I think there's still a lot of jetsam to wade through before it's on a real upward trajectory again, so I've rated the hygienist to underperform the broad market indexes on CAPS.

Tell me in the comments section below or on the Swisher Hygiene CAPS page whether you think Wayne Huizinga will be able to clean up the mess confronting the company.

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