These Stocks Rode Higher Unemployment Higher

Unemployment rose -- but so did the market! Investors were willing to lay aside the numbers massaging engaged in by the Bureau of Labor Statistics to achieve that increase, and latched onto the "good news," for a bit of irrational exuberance. Some stocks managed to do even better, though, 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.

Company

Friday's % Chg.

Price

CAPS Rating (out of 5)

Knight Capital (NYSE: KCG  )

57.0%

$4.05

***

Genco Shipping & Trading (NYSE: GNK  )

24.3%

$3.73

***

MercadoLibre (Nasdaq: MELI  )

24.3%

$82.68

****

No "fat finger" here
While still not out of the woods, Knight Capital came this close to going bust after a software glitch caused it to suffer $440 million in trading losses, halted the trading of its stock, and saw customers bail on it like rats abandoning a sinking ship.

Many investors are not aware that, when you buy and sell shares through your broker, you're not dealing directly with the New York Stock Exchange or the Nasdaq market, but rather with "market makers," like Knight, Cantor Fitzgerald, and Citadel. They take your buy and sell orders and run them through their computers to match them against trades from professionals. The SEC says virtually every single trade handled by the eight biggest brokerages uses a market maker like Knight.

Knight handles some 14% of TDAmeritrade's business, and 4% of E-Trade's (Nasdaq: ETFC  ) , which also does a little market making on the side.

Those firms had stopped using Knight after the software fiasco blew up, and it had to scramble to secure a line of credit to be able to finance the trades it wanted to make. Without it, they would have collapsed. Those pieces came together just in the nick of time, and a number of its customers have resumed doing business with them, including TDAmeritrade. This caused the stock to soar, though not all customers have returned.

With its rivals looking to gain share in the wake of the debacle, customers leery of placing trades with them, and the financial situation not completely cleared up, there's still a lot of risk here, and the stock could easily tumble once again.

Tempest-tost
The shipping industry still looks every bit the wreck of the Edmund Fitzgerald but, unlike that ill-fated ship that ended up at the bottom of Lake Superior, there are some companies that have managed to ride out the storm, even if they've taken on a lot of water.

Dry bulk shipper Genco Shipping & Trading continues to limp along, weighed down by a heavy debt burden, and turning in second quarter losses of nearly $28 million, as voyage revenues plunged 37%. Equally disastrous was charter day rates, which continued to fall, dropping 40% in the quarter, even as its expenses rose.

Genco made it to port, and its shares soared 78% since the earnings report, because its lenders gave it some breathing room by agreeing to waive loan requirements through the end of next year. There was concern that Genco wouldn't be able to service its debt, and it would end up in Davey Jones Locker, but unless industry conditions improve markedly soon, the clock is now counting down on the new deadline.

Give me your view in the comments section below on whether the shipping industry can revive or. at the least, if Genco can make it through until December 2013.

The invisible hand
Despite facing strong economic and currency headwinds, Latin American e-commerce leader MercadoLibre posted results that far surpassed analyst expectations, recording earnings of $0.57 per share, where Wall Street expected $0.49.

Part-owned by eBay (Nasdaq: EBAY  ) , MercadoLibre is benefiting from the growing adoption of Internet usage all across Latin America. Although it derives half of its revenues from Brazil, Argentina saw the best growth, with revenues rising 81%, surpassing the 72% growth realized in Venezuela. I find that both interesting and alarming, as Venezuelan strongman Hugo Chavez, and Argentinean President Cristina Kirchner have pursued similar nationalistic strategies, expropriating private property for use by the government. That the people are turning to a marketplace free from government control -- appropriately, MercadoLibre means "free market" in Spanish – suggests that the e-commerce platform is benefiting from their rule. My concern is that either one will turn their sights on the trading site, and crack down on it in some fashion.

In the meantime, it is reaping a windfall, and Motley Fool CAPS member mario17 believes "the company still has lots of space for growth in the long term, driven by the growing middle class of Latin America who are getting online." Let us know on the MercadoLibre CAPS page if you think it will be able to outmaneuver the regimes to keep on its current path of expansion.

Whoa, Nelly!
If you like MercadoLibre, then you'll like another Latin American retail opportunity that the Motley Fool has uncovered in its free report "The Motley Fool's Top Stock for 2012." Although the year is more than half over, there's still plenty of time to profit from this company's growth potential -- download your copy for free!

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Mercadolibre. Motley Fool newsletter services have recommended buying shares of eBay, Mercadolibre, and TD Ameritrade. Motley Fool newsletter services have recommended creating a write puts position in TD Ameritrade. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2012, at 11:02 PM, MHedgeFundTrader wrote:

    I was researching comparative Asian wage data the other day and was astounded with what I found. Textile workers earn $2.99 an hour in India (PIN), $1.84 in China (FXI), and $0.49 in Vietnam (VNM). This is an 18 fold increase in labor costs from ten cents an hour since Chinese industrialization launched in 1978.

    This compares to the $8 an hour our much abused illegals get at sweat shops in Los Angeles, and $10 in some of the nicer places. What’s more, the Indian wage is up 17% in a year, meaning that inflation is casting a lengthening shadow over the sub continent’s economic miracle. A series of strikes and a wave of suicides have brought wage settlements with increases as high as 20% in China.

    This is how the employment drain in the US is going to end. When foreign labor costs reach half of those at home, manufacturers quit exporting jobs because the cost advantages gained are not worth the headaches and risk involved in managing a foreign language work force, the shipping expense, political risk, import duties, and supply disruptions, just to get lower quality goods. Chinese wage growth at this rate takes them up to half our minimum wage in only five years.

    This has already happened in South Korea (EWY), where wage costs are 60% of American ones. As a result, Korea’s GDP growth is half that seen in China. These numbers are also a powerful argument for investing in Vietnam, where wages are only 27% of those found in the Middle Kingdom, and where Chinese companies are increasingly doing their own offshoring.

    This is why I have pushed the Vietnam ETF (VNM) on many occasions. I know every time I do this I get torrents of emails from that country bitterly complaining how difficult it is to do business there, and how the hardwood trees are still full of shrapnel left over from the war, and why I shouldn’t buy a 50 acre industrial park there. But, the numbers don’t lie.

    The Mad Hedge Fund Trader

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