Whoa! What Just Happened to My Stock?

Resist the urge to high-five everyone in the cubicles next to you. Your stock may have just strapped on a rocket pack and taken off for the moon, but smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating
(out of 5)

Friday's Change

InterDigital (Nasdaq: IDCC  ) **** 14.7%
Oshkosh (NYSE: OSK  ) *** 13.9%
SodaStream International (Nasdaq: SODA  ) ** 12.1%

Giving it a full week of gains and starting off the second half of the year, the markets added another 168 points, or 1.4%, to close over 12,500 points Friday. So stocks that went significantly higher are pretty big deals.

Digging in the dirt
Truck and specialty vehicle maker Oshkosh ran across some big potholes this year and saw its stock drop more than 37% from recent highs. Despite the U.S. currently being engaged in six hotspots around the globe, Oshkosh's primary source of contracts -- defense spending and state and local governments -- are finding their budgets constrained.

Yet activist investor Carl Icahn thinks it's possible to still realize value in the stock, and between April and June amassed a near 10% stake in the vehicle maker. Once upon a time, the billionaire was seen as a destroyer of value; today Icahn is recognized for being able to extract value from businesses, and the news sent Oshkosh's shares soaring.

But a magical turnaround might not be so easy. Because of its concentration in government contracts, it hasn't performed nearly as well as either PACCAR (Nasdaq: PCAR  ) or Navistar International, which find their shares 43% and 21% higher, respectively, year over year, despite recent declines. Oshkosh, even after the Icahn news, trades 7% lower than it did a year ago.

CAPS member 1picks thought the truck maker was a special situations target, though felt it might make more of an acquisition target than a breakup candidate:

With the U.S. defense budget under pressure, mergers may pick up among defense contractors. Oshkosh Corp. (OSK), which makes military transport vehicles and specialty trucks such as fire engines and cement mixers, could be picked off by a larger competitor. The Oshkosh, Wisconsin, company's stock languishes at five times earnings. Undervalued as per Harry Newton, potential takeover target.

Share your opinion on the Oshkosh CAPS page and follow its progress by adding the trucker to the Fool's free portfolio tracker.

Don't bank on it
Google
's (Nasdaq: GOOG  ) hit a rough patch, no? The search king could face half a billion in fines for knowingly accepting ad money from companies selling addictive drugs without a prescription. And a judge refused to throw out a lawsuit against it for illegally collecting WiFi data from its StreetView cameras.

On top of all that, its lowball opening bid for bankrupt Nortel's patents on cellular technology was easily trumped by the $4.5 billion offer made by a consortium of bidders including Apple, Research In Motion (Nasdaq: RIMM  ) , and Microsoft.

But the price tag was exceedingly good news for InterDigital, which has 8,800 patents (and 10,000 applications pending) related to wireless communications. If the 6,000 or so patents Nortel owned could fetch several billion dollars, then InterDigital's portfolio would seemingly be worth quite a bit more.

Of course, patents are only good until the next technological innovation comes along, but CAPS member secretbonus finds the "intangibles" related to InterDigital's business worth paying up for:

quality company, quality balance sheets, quality ROE/Margins/etc...Is the price ideal? not really but it's trading at a cheap price to yield a positive return and the intangibles are possibly worth paying a premium for, which I'm not.

Patent your thoughts on the InterDigital CAPS page and add it to your watchlist to keep tabs on what those innovations might be worth.

Spreading the truth
While I'm willing to bet on CAPS that SodaStream International won't bubble up for very long, I'm not willing to actually short the stock. It's been said before that markets can remain irrational longer than an investor can remain solvent, and the home carbonation leader's performance is a case in point.

The stock is already heavily shorted, with more than 20% of the shares outstanding sold short. The jump may indicate a squeeze is playing out here, and that could push the stock even higher, since there was no company-specific news to account for the rise. It's only been a publicly traded company since November and already its shares have more than doubled.

Longs would likely say it's also a result of its business, which they feel will have long-term success. I'm just not convinced it's the next Green Mountain Coffee Roasters (Nasdaq: GMCR  ) (another company I wrongly thought wouldn't work out) partially because it could be already losing fizz in Sweden, where it has captured a large, installed base. Both companies have similar business models selling low-margin hardware in exchange for the promise of selling high-margin consumables in the future.

Although nearly three-quarters of the CAPS members rating SodaStream think it will beat the Street going forward, the low two-star rating suggests they believe there are better places for your money. Add the stock to the Fool's portfolio tracker to see if it lives up to its promise or goes flat.

Going into orbit
It pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock's headed for reentry, or off to infinity and beyond.

The Motley Fool owns shares of Apple, Microsoft, Oshkosh, and Google. Motley Fool newsletter services have recommended buying shares of Google, Green Mountain, PACCAR, SodaStream, Microsoft, Apple, and InterDigital. Motley Fool newsletter services have recommended creating a diagonal call position in Microsoft, a lurking gator position in Green Mountain, and a bull call spread position in Apple, as well as shorting Green Mountain. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.


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  • Report this Comment On July 06, 2011, at 10:22 AM, David369 wrote:

    If soda stream is losing fizz in Sweden where it has a "large, installed base" I think I might hold on to my shares until it has a "large, installed base" in the US and starts losing fizz. Competition? Don't see any around. Main marketing points: cheaper, greener and better for you (no HFCS and they use splenda sweetener in the no calorie drinks which is supposedly better). Those points seem to cover all the main social themes of today. Other than if the units start to spontaneously explode or something, I really don't see any big downside in the near future. Yeah the stock price will bounce up and down but the trend will be up (like GMCR was/is). The company has "practice" marketing to most of Europe so they probably won't do anything real stupid. Heck, if they ever make a flavor I like I might even buy one the gadgets.

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