Beware of These 3 Booming Stocks

Every Fool knows that investing success is primarily the result of taking the long-term time horizon into consideration, and ignoring the noise of day-to-day movements.

That said, one can't help but get a little excited when a stock makes huge moves over a relatively short period of time. Below, I'm going to give you three prime examples of "noise" you should be ignoring: three stocks that have posted impressive gains recently, but that long-term investors should continue to be wary of. Read all the way to the end and I'll offer up access to a sneak peek behind a Fool service led by one of our most successful stock pickers.

Research In Motion (NASDAQ: BBRY  )
Last Friday was indeed a strange one from RIMM's stock. Early in the day, reports were surfacing that BlackBerry customers in Europe, the Middle East, and Africa were having trouble accessing data. The problem had to do with a glitch in the Vodafone network that clients were using.

But as the day progressed, the company announced its ambitious plans for its new BlackBerry 10 platform. This will include one smartphone with a normal QWERTY keyboard, and one with a touchscreen -- with four more iterations being released strategically throughout the year. Obviously, investors were able to look past the data glitch and focus more on the future, as the stock was up almost 14% on the day.

But before jumping on this bandwagon, long-term investors need to take stock of the situation. RIMM stock has already more than doubled since late September, even though earnings and market share have fallen off a cliff. Furthermore, the company doesn't have multiple revenue streams like much of its competition.

Indeed, if its new operating system ends up being the envy of the industry, RIMM could be headed for better days, but that's a big bet to take on a company that's struggled to show it can keep up with Apple's iPhone and Google's Android operating system.

Best Buy (NYSE: BBY  )
Next up is the biggest of the dying big-box retailers. Best Buy's stock was up an impressive 16% last Friday on the heels of its latest earnings release. Though international sales were down sharply and domestic sales were flat, it was online sales that saved the day, showing a 10% improvement from the previous year.

Indeed, it's good to see that the company is finally making significant inroads into the e-commerce business. But I think that over the next 10 years, this pop will likely be seen as a minor blip on the path to obscurity.

Best Buy's bricks-and-mortar business is still at a significant structural disadvantage when compared to what Amazon.com can offer its customers, both in terms of price and of the build-out of fulfillment centers that make the wait for Amazon to deliver its products negligible when compared to bringing something home straight from Best Buy's stores.

Rite Aid (NYSE: RAD  )
Finally, we have Rite Aid, the retail drugstore chain that somehow is still around. Believe it or not, the company's stock is up 40% over the past month alone!

I'll be the first to admit that, of the three companies I'm calling out here, this could be the one to prove me wrong. Prior to last month's earnings release of an actual profit, it had been an astounding 21 quarters in a row since Rite Aid had made any money. That's a pretty long losing streak.

As fellow Fool Jacob Roche recently pointed out, there have been some structural changes made within the company --  and with these changes, a return to profitability. It's tough to tell, though, how much of the recent success was due to Rite Aid's smart moves, and how much of it was simply due to the dispute between Walgreen and Express Scripts -- a dispute that has now been resolved.

Winning in the business of retail drugstores is no easy task. So although I applaud Rite Aid's recent success -- and acknowledge that there may be more to the story than I can see -- I'm still not going to be putting any money behind the company.

Growing as an investor
I'll be entering bearish CAPScalls on my All-Star profile for both RIMM and Best Buy, as I believe tracking my sentiments will make me a better investor over the long run.

If you, too, would like to continue becoming a better investor, I suggest you get the inside scoop on what Motley Fool superinvestor David Gardner will be buying this year. He's crushed the market in his Stock Advisor and Rule Breakers portfolios for years, and now you can take a personal tour of his flagship stock picking service, Supernova, which reopens to new members tomorrow. Just click here now for instant access.


Read/Post Comments (6) | Recommend This Article (9)

Comments from our Foolish Readers

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 January 14, 2013, at 7:10 PM, TempoAllegro wrote:

    InfoThatHelp:

    Well, that was a dramatic historical comparison - I am not sure if our Canadian allies, who helped fight against the Nazis, would see things your way.

    I do not know why we have to have only two cowboys, one with a white hat, one with a black hat, saying "This town ain't big enough for the both of us" in the smart phone tablet wars. This space is complicated and not going to get less so.

    RIMM will revitalize its lineup or die. Since the former alternative is more pleasant to them, that's what will likely happen. However whether the stock is currently a buy at this price after the run-up is another question entirely. The thesis for buying would include such things as a still fairly fanatical base of customers, devices with well-trusted security features, and the fact that people are low-balling it on expectations because this company's name is neither Apple nor Google.

    I am also interested in watching what happens with Nokia - which has also been punished. In my opinion, Nokia's ties with Microsoft, which may have brought it back from the brink, probably also limited its upside as we are already hearing rumblings of problems with Windows 8. Research in Motion has no such hang-up.

    For me, I am going with that Canadian cowboy with the grey hat. Even if RIMM made not another cell phone going forward, its patents, people, and production know-how would be very valuable to the right acquirer. Recognizing the value leads me to believe there's vigor still left in Research in Motion.

  • Report this Comment On January 14, 2013, at 7:42 PM, digitally404 wrote:

    RIM will do well.

    The price of the stock is going up because investors are realizing that the chances of success are actually getting better as we move closer to the launch date.

    There's a lot of buzz around BB10.

  • Report this Comment On January 14, 2013, at 9:11 PM, stapleboy wrote:

    RIMM will continue to power higher. Much, much higher. With China Mobile coming on board, skies the limit !!

    Investors are starting to wake up and finally realized that analysts and the media have their own agenda when it comes to reporting on stocks. I have witnessed nothing but dumb trading on RIMM shares over the past year. RIMM shares SHOULD HAVE NEVER FALLEN BELOW BOOK VALUE (approximately $20.00/ share)

    Even now, 2 analysts have a target price of $5.00 per share which is less then what the company has in cash.

    9 other analyst has a target price of less then what the company has in cash plus inventory.

    If you ask me, they do not make much sense and should be investigated.

    I'm glad investors have finally realized that they are no longer going to be played by the media and corrupt analysts.

    With a product launch coming that is an industry game changer, the current share price should not be anything less then $38.00 per share.

  • Report this Comment On January 15, 2013, at 7:30 AM, CZZZZZZ wrote:

    RIMM won 79million users with the oldest OS, stands to reason they will gain more with a critically accliamed modern OS.

    How about a little disclosure by the Fool....like admitting you blew the call on RIMM for the last 100% stock gain. Why are you credible now? You're wrong more often than a broken clock with regards to RIMM.

    ....tough being an iSheep these days, looking forward to the next few years of watching you eat crow.

  • Report this Comment On January 16, 2013, at 12:35 AM, winterhat wrote:

    This OS is groundbreaking. I am a programmer and a phone 'nut' and this will be a game changer. I don't know how stocks work, my money is all in mutual funds, etc, but I bought as much of this as I could afford at $11 and $13. I knew people were (and are) underestimating how great these phones will be, as I'd followed it closely. The new/exclusive technologies of BB10 are too numerous to recap. And EVERYONE was WAY UNDERESTIMATING how many millions of BB faithful are waiting for this. No one ever heard of 'Crackberry'? Those nerds have been waiting for this. The RIMMpire strikes back.

  • Report this Comment On January 16, 2013, at 7:44 PM, stapleboy wrote:

    This will be one stock, and one company that people will be talking and writing about for many years.

    How can a stock go from $6 to $225.00 per share in 18 months, and no analyst saw it coming?"

    Maybe we should ask Mr. Long from BMO what's his take?

    Is he still working there after that last call?

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