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.
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The market dropped 178 points yesterday, or 1.6%, as fears over China's economy sent stocks into a tailspin. But stocks that went down significantly more are still big deals.
The devil's in the details
It's understandable if you've been getting sick on the roller-coaster ride Orient Paper has been on. The small-cap Chinese paper products company has been through a rocky period that included charges of financial impropriety, much like the situation that has surfaced against RINO International
Orient Paper has surged, fallen, and now surged again, and although there's sometimes been no basis for its jump, yesterday it was able to buck the trend of a collapsing market by providing new guidance for the fourth quarter. Based on its results last month, Orient said it expects to generate as much as $33 million in the fourth quarter. CAPS member reachmygoals1 says yes, assuming the numbers can be believed.
The CAPS community remains generally bullish about Orient Paper's prospects, with 94% of the more than 340 members rating it dubbing it to outperform the broad market averages. Let us know on the Orient Paper CAPS page whether we'll be able to paper our birdcages with its stock certificates.
Making it to the big time
Some Aastrom Biosciences investors were annoyed the other day when I highlighted the opinions of several skeptical CAPS members, despite it having enjoyed significant share price appreciation over the past month.
CAPS member pick1998 said doubters will be put in their place tomorrow when the full results are revealed of the therapeutic benefit of Aastrom's autologous cell therapy in patients with critical limb ischemia (CLI):
We will see the whole data set (n=86) on Nov 18. This is a phase IIb, randomized, placebo-controlled, and double-blinded trial. Half of patients will have a treatment of 12 months. We don't have to wait too long to see the data.
If the data is significant, ASTM will triple its price. There are numerous cases in biotech that may be called "black swans" -- surprise again!
The failure of sanofi-aventis
Hyperventilating over fashion
When even Abercrombie & Fitch
I don't get excited at buybacks. Too many times, companies buy high and sell low simply to manipulate earnings per share since executive compensation plans are often based on EPS results. Worse, they'll take on debt to make the purchases. While company stock can sometimes be a good way to return value to shareholders, too many times the benefits turn out to be an ephemeral use of cash.
Still, the CAPS community holds a generally favorable view of Urban Outfitters, with 85% of those rating the stock believing it will turn in market-beating results. CAPS member LibbyLoo00 recently said the retailer was being unfairly held back by the poor results that have come out of rivals like Abercrombie:
Guilt by association. Beaten down as a retailer but look at the steady growth URBN has sustained in these hard times. Caters nicely to GenY buyers -- the next big boom -- and the clothes are trendy yet affordable, which is a super combination in this economy. No debt and great financials across the board.
Tell us on the Urban Outfitters CAPS page whether this retailer can continue gathering all the threads together.
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.
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