Whoa! What Just Happened to My Stock?

Buying into the idea that the best defense is a strong offense, the markets soared higher after Fed Chairman Ben Bernanke went on the offensive yesterday by defending his bond-buying program before Congress. Despite his policy's effect of devastating on interest rates for retirees, Bernanke said his policies have made everyone better off overall. Coupled with another set of positive economic numbers, the Dow Jones Industrial Average packed on additional 175 points, pushing the index above the 14,000 level, a five-year high.

The three stocks below had their own causes to celebrate, 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

% Gain

Zogenix (NASDAQ: ZGNX  )

40.5%

North American Palladium (NYSEMKT: PAL  )

11.3%

MAKO Surgical   (UNKNOWN: MAKO.DL  )

9.9%

Pain relief
They say markets don't like uncertainty, and usually when the FDA makes an out-of-the-ordinary decision investors panic thinking the worst. But investors bought into the theory that the regulatory agency's decision to delay handing down a ruling for a few weeks on Zogenix's pain management therapy Zohydro ER means it just might approve it after all.

While the FDA doesn't have to follow the opinions of its advisory panels and has been known to go its own way on many occasions, at first blush the thought that the full body would go against the 11-2 vote against approval issued by the advisory board seems hard to fathom. However, as I noted last month, there are some very good reasons why it might just do that: It uses a drug delivery technology developed by Alkermes (NASDAQ: ALKS  ) that Pfizer (NYSE: PFE  ) used to get a morphine drug passed and others have also successfully deployed; it will be given a DEA Schedule II classification making it difficult for drug abusers to obtain the hydrocodone remix, and Zogenix has submitted a risk evaluation and mitigation strategy with the drug.

While the advisory panel seems to have been worried that the pill Zogenix developed wasn't itself crush-proof, the mitigating factors above suggested to me there was the very great possibility it would be approved regardless, and I rated it to outperform the broad indexes on Motley Fool CAPS.

Since it didn't get a complete response letter, didn't have to submit any additional information, and the decision wasn't punted out an additional three months as the FDA could have done, there was more than enough reason for investors to think Zogenix will be riding high soon. But with all that the excitement built into the stock price now, I'm going to close out my CAPScall because more downside risk exists today than it did a few weeks ago.

Opportunity still shining through?
While there was no company-specific news that sent North American Palladium higher, the earnings results of palladium peer Stillwater Mining (NYSE: SWC  ) may have helped the platinum metals group miner recover some of the ground it lost following its own disappointing results.

NAP reported just a few days ago that it was taking longer than anticipated to get its Lac des Iles mine in Quebec up to snuff, and it was likely going to see elevated cash costs for the foreseeable future. Stillwater has its own problems in that activist investors have rebelled against its move away from palladium and are running a slate of director candidates to get it to focus again on the precious metal. Its earnings showed that while it beat analyst profit expectations, they were still 62% below last year's result. Revenues were down as well because of falling palladium prices.

Palladium prices have bounced off recent lows and trade for around $740 an ounce now. Stillwater's management believes the palladium market's outlook and growth are exceptional at the moment. Yet without any real basis for the gains, North American Palladium's price appreciation may not stick.

Keep moving or perish
Earnings results were also behind the rise in MAKO Surgical, a maker of robotic surgical devices. On the surface, there shouldn't be so much enthusiasm: earnings per share just met analyst expectations, revenues came in below forecasts, and the outlook for sales this year is flat. What investors likely liked was the increase in procedures reported by using its devices.

MAKO reported that more than 2,900 procedures were performed in the quarter, 29% higher than the year ago period, and they were 47% higher in 2012 than they were in 2011. More importantly, the medical device maker is expecting between 13,500 and 14,500 procedures to be performed over the course of the coming year, which translates into growth between 32% and 42% over last year.

Shares of MAKO have plunged over the last 12 months, losing three quarters of their value as the market for big, expensive machines slowed. While the sales outlook doesn't appear to be improving just yet, because of its installed base of machines it is at least seeing recurring revenues grow and that should help it build up a bigger foundation as conditions improve.

Whoa, Nelly!
Sitting near all-time lows, has MAKO Surgical's robotic surgery growth story rusted over? To help investors answer this question, Fool.com analyst and MAKO expert David Meier has authored a premium research report covering all of the must-know details on the company, including key areas to watch and risks looming in the future for the medical robotics company. Claim your copy, and a year of free analyst updates, by clicking here now.


 


Read/Post Comments (4) | Recommend This Article (4)

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 February 28, 2013, at 7:06 PM, Dawgpac wrote:

    While the outlook for sales of MAKO's RIOs this year may appear "flat", the forecast of 45-48 units will increase the installed base by 30-35%. That's a number many investors like along with the guidance for 13,500-14,500 procedures as each procedure equals approx. $5,000 in revenue to MAKO. I'm encouraged that as of the last reporting period, Frontier Capital (8.3%) and Blackrock (>5%) reported substantial stakes in MAKO. Even Fidelity bought back into MAKO and subsequently reported an ownership stake of greater than 5%.

  • Report this Comment On February 28, 2013, at 7:30 PM, ETFsRule wrote:

    CEDU +30% today, not bad

  • Report this Comment On March 04, 2013, at 9:24 AM, Retaility wrote:

    I wouldn't hedge too much on delayed disapproval equaling future approval for zohydro. The FDA could have made the decision to approve just as easily as it did to delay. All this means is that they are taking more time to discuss it. The tide has turned sharply toward curbing opioid abuse and if zohydro enters the market, there will be an inherent contribution to the current epidemic of abuse.

  • Report this Comment On March 04, 2013, at 6:20 PM, westchannel wrote:

    Why Has Motley Fool become so ethically challenged these days! They act like message board pumpers and bashers. I am suprised by their behavior I had a higher regard for their commentary at one time as a subscriber it hurts a little to know that people you sought advice from have become shills for their own book.

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Related Tickers

11/21/2014 4:00 PM
ALKS $56.40 Up +1.16 +2.09%
Alkermes, Inc. CAPS Rating: ***
MAKO.DL $0.00 Down +0.00 +0.00%
MAKO Surgical CAPS Rating: ****
PAL $0.14 Up +0.00 +1.60%
North American Pal… CAPS Rating: ****
PFE $30.45 Up +0.01 +0.03%
Pfizer CAPS Rating: ****
SWC $13.41 Up +0.44 +3.39%
Stillwater Mining… CAPS Rating: ***
ZGNX $1.18 Down -0.03 -2.48%
Zogenix, Inc. CAPS Rating: **

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