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 move up 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.
CAPS Rating (out of 5)
China Digital TV
The market soared 151 points on Wednesday, or 1.4%, as things calmed down in Korea and a host of data sets -- though not all -- offered a glimmer of economic recovery. But stocks that went up significantly are still big deals.
The devil's in the details
I'm thinking PharmAthene investors are a little premature in bidding up the biotech's shares because a judge refused to grant a summary judgment to SIGA Technologies
In this long-running dispute, PharmAthene had been negotiating a licensing agreement term sheet (LATS) with SIGA Technologies for its smallpox antiviral drug ST-246, and only later SIGA decided it wanted to buy the biotech instead. They agreed that if negotiations broke down, they would negotiate a licensing agreement in good faith, according to the LATS. While it has devolved into a he said-she said spat, the judge ruled that it's plausible PharmAthene could prove its case when all the facts are presented, so it would be premature to grant SIGA summary judgment.
That's a far cry from saying PharmAthene has won, particularly because the judge said he thinks it will be difficult for PharmAthene to prove expectation damages, which would make the aggrieved party whole by putting it in the position it would have been in had the contract not been breached.
While anthrax gets a lot of media attention and has big biotechs like Human Genome Sciences
Nearly 30% of CAPS members rating PharmAthene have marked it for underperformance. Trials are always a wild card, so let us know what you think on the PharmAthene CAPS page.
Making it to the big time
Before the jump in the value the other day, CAPS member glenncv noted that almost half of China Digital TV's market cap was made up of the cash it had on its balance sheet. There are a lot of things a company can do with so much money, and China Digital TV chose to pay shareholders a special $2-per-share dividend.
Yet it also suggests that China Digital TV's management doesn't see a lot of value out in the marketplace, so returning to shareholders this huge slug of money might mean there are fewer avenues of growth open. Investors take comfort in knowing China Digital TV's smart cards are still the product of choice for Intel, Motorola
You can keep track of China Digital's progress by adding it to your watchlist and having all the Foolish new and analysis aggregated for you in one place.
And if PharmAthene's investors were early in jumping for joy, what to make of those who bid up Orient Paper's shares? Like RINO International
RINO's management acknowledged that it out and out lied. Until all the dust settles, it's way too early to be excited about Orient Paper. As All-Star bluebare says, a bet here is a gamble that the allegations aren't true.
Yes.ONP has been beaten down but there are many safer. more profitable ventures worth investing in and I would strongly advise against investing in this stock until the air has cleared or NOT.
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 has 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.
Intel is a Motley Fool Inside Value selection. China Digital TV Holding is a Motley Fool Rule Breakers pick. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.