These Stocks Rode Higher Expectations Higher

The S&P 500 is just several points away from making a new 52-week high based on -- I don't know what. Corporate earnings have been better mostly, but outlooks are dim; the economy barely has traction; unemployment rose in 44 states in July; and Europe is still crumbling. Yet the market parties on, rising almost 1% on the week.

Some stocks also donned party hats, running up by double-digit percentages.

But resist the urge to high-five everyone in the cubicles next to you. Smart investors won't celebrate until they know why their stock surged, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.

There was no cohesive theme for why these three stocks rose as they did, and only designer Michael Kors Holdings had a real basis for the gains as it turned in a solid earnings report, which means they are the ones that will likely hold. Geron was up on speculation, while platinum metals group miner North American Palladium had at best a delayed reaction to its earnings news -- released almost two weeks ago!

Power of positive thinking
Let's get the fluff out of the way first. Geron jumped on Thursday -- and then again on Friday -- following publication of an article on Seeking Alpha touting the cancer therapies it's developing and how the next 12 months should be a seminal turning point in its history. That may be true, but the biotech left the field of stem cell research to the likes of Cytori Therapeutics (Nasdaq: CYTX) and Pluristem Therapeutics to instead focus its efforts on further developing its oncology therapies, and the drugs it has under development still have a long way to go before possibly getting a green light. The treatments hold a lot of promise and results of midstage trials will come forth over the next year (forming the basis for the positive outlook by the article's author), but bidding up the stock now on that basis doesn't seem to provide the kind of meat an investor should be basing her decisions on.

A shallow grave?
No one was touting big doings at North American Palladium, but its stock jumped anyway following an earnings report that showed the miner posting a loss on lower palladium prices and no gold sales. Shares traded essentially flat the day after, dropped that Friday, and then began their climb beginning on Monday, closing out last week with an 11% gain on Friday.

Palladium is used most in automotive exhaust systems, so it's counting on the industry making a comeback to boost demand, but rival Stillwater Mining (NYSE: SWC) also suffered a significant drop in earnings, suggesting the industry's woes are not over yet. While it realized higher prices than North American Palladium did, they were still down sharply from the year-ago period. Stillwater's palladium averaged $850 an ounce in the quarter, down 12%, while NAP saw prices that were almost 18% lower at $622 an ounce.

NAP's gold assets did nothing but serve as a drain that it now wants to sell. It closed its Sleeping Giant mine at the beginning of the year and will focus its attention on its principal mine, the Lac des Iles property near Thunder Bay, Ontario, where it's received encouraging resource reports. Still there doesn't seem to be anything meaty to sink one's teeth into here.

Designing growth
At least Michael Kors had a reason for jumping as much as it did, with sales surging 71% while enjoying an astounding 38% rise in same-store sales. Considering rival Coach pegged a 1.7% increase in comps, it's easy to see why Kors' stock was up and Coach fell on the news.

As the more established player in the field, Coach is a more mature investment. Kors, on the other hand, while having been around for years, is new to the public markets this year and it's using its rival's playbook to score success: a dichotomy of retail stores and factory outlet shops, and expanding internationally while keeping the domestic business in gear. Yet it's the international component that may be troublesome, as Europe is not exactly a robust market these days, even if you're tagging yourself as the new aspirational brand.

At 30 times earnings estimates, Kors ain't cheap, even with Wall Street's wild expectations for long-term growth of better than 30%. In comparison, Coach is expected to grow earnings at less than half that rate, but with an established global presence and a dividend that yields over 2%, I still like Coach better.

Motley Fool CAPS member naughtyguy says that for all the high expectations for Kors, it's due for a pullback as the numbers seem unsustainable. But you can tell me in the comments section below if you think Michael Kors can beat the leading affordable luxury retailer at its own game.

Whoa, Nelly!
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