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Whoa! These 3 Stocks Ignored Europe's Problems

One trading day after the Dow Jones Industrial Average scored its first triple-digit gain day since the beginning of the year and the index notched a tripled-digit decline of 130 points, a downturn almost completely erased the previous day's advance. While Europe's troubles weighed heavily on the Dow, the following three stocks ignored what was going on overseas and put up some worthy numbers.


% Gain

Sonus Networks (NASDAQ: SONS  )


Delcath Systems (NASDAQ: DCTH  )


China Digital TV (NYSE: STV  )


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.

An industry ready for consolidation
The news that Oracle (NYSE: ORCL  ) was buying Acme Packet (UNKNOWN: APKT.DL  ) for $2.1 billion sent the entire network gear industry soaring on hopes that there will be more buyouts coming down the road. Sonus Networks' gain almost matched the advance of Acme itself, so hopeful were investors that it's the next logical choice, but BroadSoft was up 10% as well.

It's not a completely unreasonable supposition, but Acme had certain attributes -- like profitability -- that Sonus doesn't. Moreover, Sonus bought Network Equipment Technologies last year, a manufacturer of Internet communications equipment for both government and the private sector, in an effort to beef up its presence in the enterprise SBC market. SBCs set up Internet calls over landline and wireless phone networks, and that simply means that as more information gets routed over the Internet, it'll need robust gatekeepers to regulate the flow of traffic from outside networks. But analysts thought it overpaid for the purchase, and that will add to its pressures.

Let me know in the comments box below who you think might be willing to step up to the plate and make a bid for Sonus Networks.

The pressure's on
German regulators said the country's cancer centers could receive reimbursement from insurance companies for the chemotherapy procedure Chemostat developed by Delcath Systems. While it gives them a foot in the door in having the procedure more widely used and accepted, the decision doesn't mandate reimbursement, just that the centers can negotiate with the insurers. While a mandate might have been optimal, the designation does open pathways for broader adoption, particularly as Germany is the largest market in Europe for the procedure.

Chemostat is a drug delivery system that serves to treat tumors in the liver. The liver's blood outflow is isolated from the body's other organs and saturated with chemotherapy at concentrated levels. With the recent implosion of Celsion after its late-stage trial failed on a different liver cancer treatment, Delcath is now the specialist investors are watching closely. The news out of Germany could give them some hope it will be able to build on this success, but, as with most small biotechs, there are still risks ahead.

Say no more
There was no company-specific news to account for the jump in China Digital TV's shares, other than its announcement that it will report fourth-quarter and full year 2012 results later this month. Perhaps investors are expecting earnings to come in well ahead of expectations.

I've been a little early in my investing thesis that China's mandate of a conversion to digital signals will pay off handsomely for the smart-card maker the way the conversion to digital signals here in the U.S. helped push Dolby Labs and Corning to new heights. Dolby was the sound standard on the new TVs, and Corning provided the glass for all the flat-panel TVs that were sold. When the conversion came about, they reaped the rewards.

China Digital is similarly situated, making the smart cards that are essential for the new standards. It owns 57% of the smart-card market in the country, which is the reason for my confidence in its being a prime beneficiary of the move.

Last year's fourth-quarter results were weak in comparison with the prior year's effort because of a sharp spike in smart-card demand as a deadline for provincial cable network consolidation loomed. We're bearing down on the 2015 deadline now for digital signal conversion, and I suspect we'll start seeing sales grow appreciably in the near future for the same reasons.

Whoa, Nelly!
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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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