You saw the headlines. You know your stock price made a big move -- up or down. But what does that portend for your investment's future? If there's not a fundamental basis for a stock's run higher, or its trip to the cellar was fueled by transient, panic-driven selling, those gains or losses might not hold -- and therein lies the potential for investors to profit.
So this week we're looking at two stocks that bolted higher: flash memory player Fusion-io (NYSE: FIO), which roared ahead 38%, and MEMC Electronic Materials (NYSE: WFR), the second-largest polysilicon maker in the U.S., which surged 36% on the week. And to prove not all is rainbows and unicorns, we'll check out market maker Knight Capital (NYSE: KCG), which tumbled 28%, still reeling from the software glitch that nearly put it out of business.
But you can't follow the momentum crowd blindly, which is why we look at what may have been behind those moves, and we'll even take into consideration what some of the sharpest investors think about their prospects going forward. Event-driven moves, coupled with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, might enable you to discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.
Remember this
Although there's a lot to be fearful of in the semiconductor industry at the moment, Fusion-io showed that when it comes to cloud computing, investors needn't worry about slack demand. Its flash memory cards are in high demand as data centers look to its software to speed up access, and with NetApp jumping on board, Fusion-io is forecasting sales to run 50% higher this year, soundly beating analyst expectations.
The flash memory specialist also reported strong revenues and profits for the quarter that just passed, as sales surged 49% to almost $107 million, well ahead of last year's effort and scoring an easy win over consensus analyst forecasts of $96 million. While profits of $0.09 per share were down 40% from the year-ago period, they were more than double the $0.04 Wall Street was anticipating.
The market is excited because Fusion-io stands to gain handfuls of new share, even at the expense of EMC (NYSE: EMC), which makes hardware to store the data. Its solution is a software-based accelerator that resolves bottlenecks created by hardware. And it doesn't matter what kind of connectivity the center has, because it works over Fibre Channel, Infiniband, or iSCSI. Fusion-io calls its ION Data Accelerator "software defined storage" and it could be the game changer cloud-based applications need.
One of the Fool's tech gurus, Anders Bylund (who goes by the name TMFZahrim on CAPS), thinks the digital memory storage maker will benefit big-time in the coming big data revolution, and I agree. I'm keeping my outperform rating of Fusion-io on CAPS, but tell me in the comments section below just how big you think this opportunity is.
Wafer-thin improvement
Has the sun come out again for solar power? First, First Solar (Nasdaq: FSLR) beat expectations and raised guidance, and now polysilicon maker MEMC Electronic Materials is doing the same on the strength of its solar energy segment, at least as it applies to second-quarter results. Even it admits the sector is suffering from too much turmoil right now, so it can't reasonably predict how it will do in the third quarter let alone the full year. But it does expect revenues to come in higher in the back half of the year than they did it the first half.
With analysts no longer fearing it will descend into bankruptcy, every day has to look better than the last, but I think any hopes for a brighter tomorrow are a result of sun blindness. After all, First Solar was an aberration compared to the rest of the industry, and as I noted at the time, once you back out adjustments, the solar shop's business is deteriorating and its guidance was actually cut. MEMC's results don't really portend any sustained healthy recovery, either, so I wouldn't expect much more out of the company despite its hopeful rhetoric. Count me among those thinking MEMC Electronic Materials will underperform the broad indexes on CAPS.
A knightmare scenario
Of course, Knight Capital is finding itself in the same position that MEMC did recently, with individuals expecting it may still go out of business. A software glitch caused it to suffer $440 million in trading losses and halted the trading of its stock. Customers who couldn't fill orders quickly bailed on it, and though it secured a lifeline that allowed it to open its doors again, the future still remains cloudy.
According to analysts, most of Knight's customers have returned, believing the market maker's assurances that it was an isolated incident. Yet many questions still remain as to what went wrong, and investors would do well to tread warily here. An investigation is under way into the matter, both internally and externally, and while you might lose some points by waiting for the dust to settle, without a timetable for completion you'd be investing blind to plunk your dollars down here.
Knight Capital may very well survive this debacle, but the situation is still in too much of a state of flux for me to recommend the stock. Let me know in the comments box below where you think the ultimate blame lies.
Stop, look, listen
While I'm not a fan of First Solar's prospects, many Fools are, and The Motley Fool has a new report out on the company, with a detailed look at the company’s market position and potential. The report comes with updates when big news happens, so you can always stay up to date on the company. Click here for details.
