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? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.

On a day when the market opened higher after Fed chairman Ben Bernanke said he was going to continue pouring money into the economy, the market tumbled as banks took a hit on "foreclosure-gate," and within an hour tumbled more than 100 points. With movement like that, even a high-flying blue chip can look like a volatile penny stock.

The devil's in the details
Private equity is once again chatting up drive maker Seagate Technology. We've noted recently that along with rival Western Digital (NYSE: WDC), the market was valuing Seagate so low it was becoming difficult to dismiss the opportunity the shares represented. Both sported low, single-digit market multiples, so low in fact that famed value investor Whitney Tilson couldn't ignore it.

Kohlberg Kravis & Robert and Bain Capital are said to be the private equity firms vying for the disk maker. If one or the other (or both) go through with taking Seagate private, they would have stolen a prize company from TPG Capital and Silver Lake Partners, both of whom had previously held going-private discussions with the firm. Those talks apparently fell apart after disappointment with Seagate's ability to hit some performance numbers.

With shares up big Friday as a result of these talks supposedly being real, CAPS All-Star member naughtyguy likes that there might be a bidding war. Yet there's been no disclosure about the talks or how much someone is willing to pay. While the new price could reflect just a base from which to jump further, it could also be well above what the firms are willing to pay.

Think the new, higher price for Seagate shares is just the starting point? Let us know on the Seagate Technology CAPS page and add the stock to your My Watchlist page where you'll have all the Foolish news and analysis about this stock aggregated for you.

Making it to the big time
Is this what a short squeeze in Chinese stocks looks like? CAPS All-Star throwerw says not only is China MediaExpress burning short-sellers -- it had 4.4 million shares sold short, representing 41% of the float -- but China Biotics (Nasdaq: CHBT) was jumping as well and Universal Travel (NYSE: UTA) would be the next to run higher:

[China MediaExpress and China Biotics] are still in early stages of the squeeze. Both trade at 6-7 2010 earnings, growing like weeds, and are sitting on big piles of cash. [Universal Travel] will be the next to blow, because its not a fraud, shorts are piling on at rock bottom valuations, and I think we will see a buyback announcement soon.

Admittedly, disappointing second-quarter numbers knocked shares of the out-of-home advertising house down to new lows last month, but China MediaExpress was another stock the market was valuing as if it had no future. Locked in a tight competitive match with VisionChina Media (Nasdaq: VISN) for the eyeballs of public transit riders, China MediaExpress has now more than doubled from its nadir.

Let us know on the China MediaExpress CAPS page whether this is the short squeeze that's been predicted or if it's about to reverse course once again.

Sunny days are here again
Maybe the MarketWatch blog headline that Google's $600 price tag was just a way station on the road to $2,000 a share was simply analyst hype, but the strong third-quarter earnings results the search king posted at least arguably suggest it is undervalued.

Revenues and operating income came in much better than expected as paid clicks jumped 16% year over year. Mobile computing alone is adding $1 billion annually to Google's revenue. It's still throwing off gobs of free cash flow even though it spent exorbitant sums on capital expenditures. It's why CAPS member Sparticus501 says Google remains an innovative powerhouse:

This compnay is more than just the dominant Internet search engine, they are getting into the cellular phone business and cloud computing. They are still inovating, developing and creating new services and products.

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.