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? Let's examine a few stocks that just hit the afterburners, and see whether they're truly headed into orbit.
|
Stock
|
CAPS Rating
(out of 5)
|
Tuesday's Change
|
|
China Natural Gas (Nasdaq: CHNG )
|
*
|
19.8%
|
|
Valence Technology (Nasdaq: VLNC )
|
***
|
14.8%
|
|
Oilsands Quest (NYSE: BQI )
|
****
|
13.7%
|
Source: wsj.com and Yahoo! Finance.
On a day when the market fell 107 points, or 1.03%, even a high-flying blue chip can look like a volatile penny stock.
The devil's in the details
Like Clean Energy Fuels here at home, China Natural Gas is building a series of natural gas fueling stations in its home country. China Natural Gas got flamed in August for failing to disclose it was in violation of loan covenants setting it up for a default of the agreements and forcing it to restate its financial statements. In a bid to put investors at ease, it hired Big Four accounting firm Ernst & Young to assist it with compliance. With shares up nearly 20%, it seems to be working.
While there was no specific news to propel Valence Technology so much higher, Altair Nanotechnologies also had a big run-up yesterday. However, it might not be so much a phenomenon of lithium battery makers running higher as just crazy volatility. A123 Systems was flat and Advanced Battery Technologies actually fell. But with a lithium battery glut, these moves higher might not be sustainable.
Making it to the old-age home
Tar sands developer Oilsands Quest got a brief boost last month when it announced that it was "exploring strategic alternatives," which usually means putting itself up for sale. It had tried to sell off assets piecemeal, but its buyer couldn't raise the necessary financing and the deal collapsed. Not even rising oil prices have been able to help the oil sands developer get out of the morass it's been in, and its stock is basically offering investors a buy-one-get-one-free sale.
Suncor Energy (NYSE: SU ) is also in the midst of a strategic realignment and today announced yet another sale of non-core assets. To date, according to MarketWatch, Suncor has shed "all of its oil and gas producing assets in the United States Rockies, non-core natural gas properties in Western Canada, all Trinidad and Tobago assets and all of it shares in Petro-Canada Netherlands." That leaves just a few other western Canada properties that it wants to unload.
Oilsands Quest's strategic review process looks like it's gathering steam. A series of management personnel changes were announced yesterday, with the chairman and CEO giving up his positions to better focus his skills on the review, while two board members were moved into the vacant slots. Oilsands' COO also resigned.
Oil sands are plentiful, but it is particularly energy intensive to get usable oil from them. Canada is awash in such reserves and is the largest supplier of oil to the U.S. However, a proposed pipeline from Alberta down to the U.S. has run into a political fight as environmentalists protest the disruption it would cause to air, water, and wildlife. Canadian officials will be meeting with House Speaker Nancy Pelosi to try and smooth ruffled feathers and probably remind her that the country is also the largest supplier of natural gas to her home state of California.
Assuming the strategic review doesn't end up with Oilsands Quest selling itself to some bidder, CAPS member johndownes thinks the developer will end up doing more than eking out a living:
Oil sands stocks are speculative, granted, but what stocks aren't in this economic environment? Up is the only possible direction for oil as a commodity and oil sands as the long-term future. [Oilsands Quest's] inventory is proven, and the cost to obtain it is high, of course; but as price of retail gas starts climbing toward $4, then $5, watch the urgency of oil sands precipitate, and the value of the company and its stock soar.
Going into orbit
Just because your stock has taken to the stratosphere doesn't mean it won't lose altitude. Markets are known for overreacting. A closer look at what's happened to your stock can give you an edge over other investors who merely follow the market's lead.
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 reentry, or off to infinity and beyond.
RSS Headlines
Fool UK