1 of These 3 Stocks Won't Hold Its Gains

The decision by the European Union over the weekend to force Cypriot bank account holders to have their savings taxed in exchange for giving the nation's government a bailout -- and the resulting vote by Cyprus' parliament rejecting the deal -- had a chilling impact on the market. The Dow Jones Industrial Average barely moved on Tuesday, inching up just 3 points, as all eyes wondered how the financial mess would sort itself out.

If Cyprus is allowed to leave the EU, the entire structure crumbles, but taxing the bank accounts of individuals is an unprecedented maneuver that could cause bank runs in other financial unstable countries because the camel put its nose under the tent.

The three following stocks, however, were far removed from the scene of international intrigue, rising on their own merits. Yet 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

Pacific Biosciences (NASDAQ: PACB  )

15.4%

NPS Pharmaceuticals (NASDAQ: NPSP  )

9.3%

Cardinal Health (NYSE: CAH  )

8.2%

What a life!
With a potential bidding war looming for Life Technologies (NASDAQ: LIFE  ) as possible buyers from Roche to Thermo Fisher Scientific and Danaher join a slew of PE firms weighing bids, investors looked about to see what else might be on the table and found Pacific BioSciences of California a possible target.

Life is a genetic testing company whose advanced diagnostics and consistent cash flows are considered jewels worthy of owning. PacBio is a similarly situated DNA sequencing company whose tools for biological research, including its RS system, might also suddenly be of interest to buyers if they're eventually shut out of Life Technologies.

Roche, for example, previously considered taking over Illumina but ultimately declined, noting there were alternatives on the market for gene-sequencing technology. Presumably one of those is Life Technologies, and certainly another would be PacBio, but until bids are received for the former, a possible valuation for the latter isn't really possible.

Take two; they're cheap
It wasn't a possible buyout that had shares of NPS Pharmaceuticals rocketing higher yesterday, but rather the buying back of global rights to its short-bowel syndrome drug, Gattex, and the recombinant human parathyroid hormone 1-84 that had investors bidding up its shares.

For just $50 million, NPS bought out its European distribution partner Takeda Pharmaceuticals for something that is expected to have peak sales of $350 million in the U.S. alone, in addition to what it can garner abroad. Short-bowel syndrome occurs when much of the small intestine has to be removed and the body is unable to absorb as much water and nutrients as it did previously.

NPS will pay Takeda an additional $30 million in cash or stock when sales of Gattex and 1-84 exceed $750 million annually.

Feeling sick
The health-care field was apparently the place to be in the market yesterday, because Cardinal Health took it on the chin yesterday as well after Walgreen (NYSE: WAG  ) chose to go with AmerisourceBergen rather than renew its contract with the drug distributor. 

The pharmacy giant accounted for 21% of Cardinal's fiscal 2012 revenues, and while the announcement won't affect fiscal 2013 results since the contract runs through June of this year, it's obviously a big hole that needs to be filled. 

Customer concentration is always a risk that investors need to be mindful of, and with CVS Caremark accounting for another 22% of revenues, Cardinal needs a way to assure the markets that it won't be damaged further by weakening that relationship. But it might also be time for investors to take a closer look at AmerisourceBergen, as this new agreement gives Walgreen and its recently acquired subsidiary Alliance Boots a stake in the drug distributor.

Considering the hit to sales Cardinal will take, even if it's for the fiscal 2014 year it's surprising the stock didn't fall further. I still wouldn't wade in here just yet.

Ready for a resurrection
While looking at 2012 performance is useful, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

 


Read/Post Comments (0) | Recommend This Article (5)

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.

Be the first one to comment on this article.

DocumentId: 2324129, ~/Articles/ArticleHandler.aspx, 4/20/2014 11:53:49 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement