Bank bailouts in Europe -- and maybe even the countries themselves -- are bad, but thoughts of the Fed bailing out the U.S. economy with even more stimulus is apparently good news, because the Dow Jones Industrial Average jumped 162 points yesterday as comments from Chicago Fed president Charlie Evans indicated he would support action.
While I say a pox on both their houses, some stocks actually went even higher than the Dow. 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 can quickly make the return trip down.
Oh, sunny days
One deal does not a turnaround make, and while First Solar
Europe's financial situation remains volatile and there could be a breakup of the union let alone the euro. Moreover, German subsidy reductions remain a concern, silicon prices are still falling, and a persistent inventory glut doesn't paint the rosiest of pictures. Yet it can't be denied that European demand is stronger than what was previously believed or expected, and LDK Solar
Yet it shouldn't be forgotten in the euphoria that although First Solar intends to now run its German plants at full capacity through October, it's still planning on reducing production there before closing them by year's end. So it's only a delay of the inevitable, not a reversal of it.
Admittedly, I remain a bear when it comes to the solar industry in general, and First Solar in particular, as last November I rated it on CAPS to underperform the market indexes. Despite the immediate improvement in First Solar's prospects, I'm not ready to close out that winning CAPScall yet, agreeing with All-Star member chk999 that a global economic recession is still before us and solar shops will come out getting the short end of the stick.
You can add First Solar to your own Watchlist to keep track of its performance, then tell me in the comments section below or on the First Solar CAPS page whether you see reason to believe there's still sun behind the clouds.
There was no company-specific news driving Arena Pharmaceuticals
As I pointed out last month, however, I'm not certain investors should be so hopeful. There remains concern about the drug's safety profile, and as happened with VIVUS, it may merely get a PDUFA extension rather than an outright decision (which may also account for VIVUS' less-than-exuberant rise yesterday). Although that might mean the FDA could approve lorcaserin down the road -- if they weren't willing to kill it now they could pass it later after having time to sleep on it -- the regulatory agency is well known for ignoring its panel's recommendations and going its own way.
I made an underperform CAPScall on Arena as well after last month's meteoric rise, and while that one isn't paying off as handsomely for me yet as the First Solar one is, considering the FDA's history I think it's a safer bet on this side of the call than betting on approval.
CAPS member madman27 isn't so sure; since lorcaserin has certain advantages to VIVUS' Qnexa, he foresees approval in the cards and Arena being ready to hit the ground running: "With manufacturing facilities ready to go (in Switzerland) and a strong partner already signed up, we seem to be geared up to witness a blockbuster stock."
Going into orbit
The gains made by these stocks may be fleeting, but if you're interested in health-care stocks like Arena, you might want to expand your horizons to find maximum returns. Follow the money and meet the leading candidate for outsized returns in our new report, "Discover the Next Rule-Breaking Multibagger." Click here for instant access to this free report.