You saw the headlines. You know your stock price made a big move -- up or down. But what does that portend for your investment's future? If there's not a fundamental basis for a stock's run higher or its trip to the cellar was fueled by transient, panic-driven selling, those gains and losses might not hold -- and therein lies the potential for investors to profit.
So this week we're looking at two stocks that bolted higher: InvenSense (Nasdaq: INVN ) , a motion-control chip designer for smartphones that roared ahead 40%, and the once-leading maker of mobile handsets, Nokia (NYSE: NOK ) , which surged 37% on the week. And to prove not all is rainbows and unicorns, we'll check out social-network gaming specialist Zynga (Nasdaq: ZNGA ) , which tumbled 40% after earnings caused investors to take their marbles and go home.
But you can't follow the momentum crowd blindly, which is why we look at what may have been behind those moves, and we'll even take into consideration what some of the sharpest investors think about their prospects going forward. Event-driven moves, coupled with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, might enable to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
Game called because of indifference
Let's start at the bottom of the alphabet, with Zynga's terrible, horrible, no good, very bad earnings report that shows its business wasting away. It's not so much what the gaming platform did in the quarter that gutted the stock, but what it said it was going to do -- or not do, really -- in the months ahead that hurt.
Revenues were up 19% from the year-ago period (though below analyst expectations), but profits turned to losses, and even adjusted net income was dismal. Worse for the gamer was the guidance it offered: Bookings were getting slashed, its overpriced acquisition of OMGPOP was going to do worse than originally predicted, and full-year profits were expected to virtually evaporate. At best, it says it will earn $0.09 per share compared to the low end of its prior guidance of $0.23. That's a 60% drop in a best-case scenario; at worst, it's more than a 86% difference. As my colleague Eric Bleeker writes, this bloodbath is deserved.
Needless to say, Facebook (NYSE: FB ) doesn't come out looking good in this, either. Zynga accounts for 15% of the social-networking site's revenues, though as fewer and fewer people wake up to the notion that spending money for virtual goods doesn't make sense, that percentage will decrease.
I'm keeping my underperform rating of Zynga on CAPS in place, believing that even at this lower valuation there's still plenty of air beneath it for it to drop further.
Take out or to go?
Apparently investors think what's bad for Apple (Nasdaq: AAPL ) is good for cell-phone maker Nokia, as the former reported a rare earnings miss, which seemed to have the salutary effect of boosting the latter. Along with cutting employment rolls and allegedly doing away with an in-house software platform, the handset maker is hoping to save money to allow it to fight another day.
The battle, though, may be as part of another company, as takeover rumors persist. It has a valuable patent portfolio, and despite selling more mobile phones this past quarter, it's still losing out to Google's Android phones, and Samsung has surpassed it as the biggest handset maker. But that sort of speculation is always around, and even if it might be the best solution, investors need to focus on the here and now, which shows a dwindling position against much stronger rivals.
CAPS member Truth2Power says Nokia is betting all its chips on its Microsoft partnership, it may be too little, too late as "they were once top dog, but now they make devices nobody seems to want to buy." I agree and have marked it to underperform on CAPS, but tell me in the comments section below if you think it can dial up growth.
No motion sickness here
Yet it's those same Android handset sales that are what's pushing chipmaker InvenSense higher. Its chips integrate gyroscopic, sensor, and other technologies into a single "motion processing" chip that are found in HTC, LG, Motorola, and Samsung handsets. Although it had reduced the high end of its earnings guidance as a result of component shortages, it was still able to turn in respectable numbers and offer a second-quarter forecast that was well above consensus estimates. There's greater uptake of its newest Motion Interface offerings, and with smartphones now accounting for three-quarters of its revenues, it will rise as that technological revolution gathers steam.
Plenty of companies have benefited big time from the rise of smart devices, few more so than Apple. The Fool recently created a premium report that explains in clear detail both the risks and potential rewards associated with owning the iEverything powerhouse. If you want to wrap your head around one of the hottest names in tech, access your copy today.
In the meantime, you can head over to the InvenSense CAPS page or tell me in the comments section below how large a slice of that trillion-dollar pie the chipmaker itself will be grabbing.