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The lasting effects of the European Central Bank's promise to save the euro and hopes for further Fed stimulus sent the Dow soaring another 187 points on Friday, helping it break through the 13,000-point barrier for the first time in months. Some stocks managed to do even better, running up by double-digit percentages.
But 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, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.
CAPS Rating (out of 5)
|AuthenTec (Nasdaq: AUTH )||66.1%||$8.42||*****|
|OCZ Technology (NYSE: OCZ )||30.1%||$7.08||**|
|Arch Coal (NYSE: ACI )||29.3%||$6.80||***|
Although in popular parlance Kevlar vests are thought of as "bulletproof," after 20 years in law enforcement I can tell you they're only bullet-resistant -- a big difference. A popular misconception about Apple (Nasdaq: AAPL ) was that its products are "virus-proof," though the company just dropped the claim that they're even "virus-resistant." The new Mountain Leopard OS even comes with a program called Gatekeeper to give the user control over apps that can be downloaded to a computer in an effort to protect it from malware.
As the iPad and iPhone are more widely adopted by business customers, Apple's need to prove that its products are safe led it to make an offer for AuthenTec, a fingerprint recognition company that has grown into an end-to-end security management services provider. It also sucks the air out of the room for rival Samsung, which had only just agreed to start using AuthenTec's technology in its devices and which analysts now think will back out of the deal, considering Apple's ownership. Others think Samsung could make a competing offer for the company, which likely explains why the stock is trading higher than the $8-per-share bid Apple made. Among the PC crowd, Dell and Hewlett-Packard are AuthenTec customers, though Lenovo was its biggest client, representing 16% of revenue last year.
So is one in the hand worth two in the bush? As an investor, tell me in the comments box below or on the AuthenTec CAPS page if you should cash out at the higher price, knowing you'll have a profit over Apple's bid, or hold on and see if Samsung (or someone else!) comes back with a higher offer.
After Western Digital reported expectation-trouncing results last week that left Seagate Technology's (NYSE: STX ) watered-down earnings preannouncement looking anemic, speculation has strengthened that Seagate will make an offer for OCZ Technology to give it a leg up in solid-state-drive technology. If rumors prove true, an announcement is expected after it reports its actual earnings today.
Hard-disk drives may never fully disappear, but the movement toward solid-state drives is inexorable. Seagate and Western Digital own 90% of the drive market, with Toshiba given the scraps. I still find both leaders screaming values, trading as they are at less than five times estimates. There's some fear that pricing (and profits) will soften now that flooding conditions in Thailand have thoroughly dried out, but even after their recent leaps, I say both drive makers are a buying opportunity.
I like Seagate more, particularly if it does scoop up OCZ, and I've placed my bet on it. Give me your view of the competition in the comments section below.
It's a rare day when a coal company gets to report good news, but under-the-gun Arch Coal at least got a boost when it reported earnings results that were less bad than expected. Losses appeared as volumes fell through the floor in the Powder River Basin region. However, I find it hard to think the gains will last.
Peabody Energy also posted results well ahead of analyst expectations, but that just shows that Wall Street had a really dire outlook on the industry. That the situation isn't so bad yet doesn't really mean it's good, either.
Still, as the coal industry adjusts to the new realities of its business, inventories will end 2012 where they started the year, and the switch from coal-burning to gas-burning power plants will ease as natural-gas prices rise from higher demand. It may not stop the decline of coal, but a lower level of stasis may be achieved, which should help miners like Arch, who have initiated cost-cutting programs.
But will that be enough to allow Arch to survive the industry's ills? Let us know on the Arch Coal CAPS page. It saw its cash balances rise this quarter to $512 million, but its long-term debt grew to $4.5 billion as well. Still seems like a shaky company to me.
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