Whoa! What Just Happened to My Stock?

Resist the urge to high-five everyone in the cubicles next to you. Even if your stock just strapped on a rocket pack and took off for the moon, smart investors won't celebrate until they know that the 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)

Monday's Change

Valence Technology (Nasdaq: VLNC  )

**

21.6%

Rare Earth Elements (NYSE: REE  )

*

15.5%

China Shen Zhou Mining & Resources (NYSE: SHZ  )

*

10.2%

On a day when the markets barely moved the needle, falling just a fraction of a percent, stocks that went up significantly are still big deals.

The devil's in the details
The director at electric-car battery maker Valence Technology, who bought a nice slug of stock earlier this month, apparently knew what he was getting himself into. He bought 3.8 million shares for an average of just $1.20 a stub, no doubt figuring the company's second-largest customer, Smith Electric Vehicles, would continue electrifying the stock.

PepsiCo (NYSE: PEP  ) division Frito-Lay contracted to buy Smith's vehicles, as did office-supply company Staples (Nasdaq: SPLS  ) . Now the U.S. subsidiary of Smith will be buying out its U.K.-based parent, a move that just might give Valence the chance to sell even more of its technology to the company.

Although there's still some skepticism over how widespread electric vehicles will become -- Tesla's (Nasdaq: TSLA  ) stock dropped after the lock-up period of its IPO shares as investors worry that the electric-vehicle market can't support the stock price -- nearly three-quarters of CAPS members rating Valence think it will outperform the broad market averages.

Tell us on the Valence Technology CAPS page whether the battery maker can find its way to higher growth.

Making it to the big time
The impetus for Rare Earth Elements to develop its wholly owned Bear Lodge property, possibly one of the largest rare-earth deposits in North America, got a big boost as China carried through on its threat to cut exports of rare-earth minerals. In the first round of permits issued for 2011, China cut export quotas by 11%. Molycorp (NYSE: MCP  ) , which announced that it is developing its own rare-earth mine in California, also jumped. It rose by 9% yesterday but was down by more than 6% today.

This is the same force that pushed China Shen Zhou Mining & Resources higher yesterday as well. All over the globe, companies are rushing into the space because of China's actions. The country may gain an early advantage by clipping exports, but since the U.S. alone has 13% of the world's rare-earth resources, China's move may ultimately backfire.

Highly rated CAPS All-Star tenmiles isn't putting much stock in China Shen Zhou's chances of capitalizing on the rare-earth-minerals mania, and only a handful of CAPS members have actually rated the company -- though 68% believe it will outperform the market. You can head over to the China Shen Zhou Mining & Resources CAPS page and tell us whether growth will be as rare as hen's teeth.

No doubt the CAPS community is down on Rare Earth Elements because it's not producing any minerals from its mine yet. Only 40% of those rating it think it will do better than the market, though nomo001 is counting on China's actions to help: "Rare Earth stocks have been strong performers lately, due to export restrictions by China. There are limited ways to play this theme."

Yet even Molycorp has its detractors, and it's probably the more advanced option here. CAPS members are evenly split over whether its performance can beat the market. Like tenmiles, bzhayes finds the sudden interest by investors to be a tempest in a teapot: "rare earth elements: a big bubble in a tiny segment."

Going into orbit
That's why 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 re-entry or off to infinity and beyond.

Staples is a Motley Fool Stock Advisor pick. PepsiCo is a Motley Fool Income Investor choice. Motley Fool Options has recommended a diagonal call position on PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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  • Report this Comment On December 29, 2010, at 11:08 AM, kdt34wqx wrote:

    Look at the price of crude. If electric cars had any future oil would be $20. If electric cars were the slightest bit practical, they would have caught on by now.

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