Whoa! These 3 Stocks Didn't Deserve Their Gains

The Dow Jones Industrial Average is turning this winning streak into a marathon. At 10 days, Joe DiMaggio's 56-game hitting streak isn't in any danger yet, but the index is still putting together an impressive string of gains.

Though unwarranted, the three stocks below held a party of their own, but please 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

Sinovac Biotech (NASDAQ: SVA  )

17.9%

Joe's Jeans (NASDAQ: JOEZ  )

9.9%

Bazaarvoice   (NASDAQ: BV  )

9.3%

Pearls before swine
Although they sound similar, the outbreak of foot-and-mouth disease among pigs that China just confirmed occurred in the southern province of Guangdong is not the same disease as the vaccine for hand, foot, and mouth disease being pursued by Sinovac Biotech. Although the same virus family causes both diseases, they are not able to crossover between species from livestock to humans.

Sinovac, though, still had good news to report in that it said a late-stage trial of its experimental vaccine for the illness met the main endpoints of a study for preventing the infection in infants between the ages of six and 35 months with Enterovirus 71 showing 95.4% efficacy. According to reports, more than 1 million cases have been identified in China over the last five years, with some 500 to 900 people dying annually.

Thus, although the vaccine may prove effective, the market opportunity may not be as great as it initially appears, which probably explains why the stock initially soared some 50% on the news, only to scale back the gains to a high-teen level. Since it's a geographically isolated company with a niche -- albeit successful -- product, it doesn't necessarily translate into a good stock for investors to go after.

Cotton-eyed Joe
There was no particular reason for Joe's Jeans to suddenly perk up yesterday. There was no news on the wires, it has no real short sellers to speak of, it already reported its earnings last month, and it announced a couple of days ago that it would participate in an investor conference next week. In short, this was one of those situations where some ephemeral mutation in the market caused the stock to spike.

Still, shares have more than doubled from their 52-week low and it trades 25% higher than it did just a week ago. But I've never been enamored of the company despite it being a Hollywood Walk of Fame favorite. I think there's still more risk now that it's transitioned to a retail shop as opposed to being just a pure licensor of its brand. While sales were 32% higher and same-store sales were up 6% in the fourth quarter, tastes change and fashion is fickle. Having the added costs of a bricks-and-mortar operation may make it difficult to compete if its jeans fall out of favor.

That True Religion is pursuing strategic alternatives suggests to me the high-price demin concept is played out. Fifth & Pacific, the owner of Lucky Brand jeans, Juicy Couture, and Kate Spade saw sales fall 1% in 2012, but it was really only due to the growth of Kate Spade -- up 27% -- that the retailer was carried higher. Lucky Brand was up just 3% and Juicy Couture was down 2%. 

Without a real reason for a spike, then, Joe's is more likely than not to make a return trip down.

No justice, no peace
Maybe it was the filing of its quarterly report that caused investors to flock to Bazaarvoice, a social media analytics business that helps companies monitor online word-of-mouth commentary. The 10-Q confirmed what it reported last month: that revenue rose 52% from last year while losses widened. Considering that it's still undergoing an antitrust investigation by the Justice Dept. over its acquisition of PowerReviews last year -- an investigation that came about two months after its CEO abruptly resigned -- there's little really to get excited about here.

The stock went public a little over a year ago but trades at less than half of what its IPO was priced at and is down 65% from its 52-week high. Until the dust cloud hanging over the analytics shop settles a little more, it's probably best staying on the sidelines with this one.

Whoa, Nelly!

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.



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