The market went bananas yesterday, jumping 245 points or almost 2%, after Europe's finance minister Mario Draghi promised to fix everything wrong with the eurozone through an unlimited bond-buying program. Or, as the folks at Zero Hedge inform us, Pierpont Securities has termed it "classic banana republic banking." So don't expect the good times to last.
Yet some stocks were even more "eur-phoric" than the market, rising 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.
A house divided
I'll admit to being one of those who believes the giddiness in the housing sector is premature, that there are still far too many houses in inventory that will keep it depressed for some time to come. But mortgage insurer Radian Group
Mortgage insurers like Radian, MGIC Investment, and Genworth Financial are still struggling to recover from the housing debacle and both MGIC and Genworth have risk-to-capital ratios in excess of the statutory maximum 25-to-1 ratio. Radian says that while its ratio declined to 21-to-1 as of June 30, it expects to exceed the cap later this year, so even though its delinquent loan numbers are improving, it's not going to be enough to salvage the situation.
Moreover, the number of delinquencies being solved through cures is on the rise again. A cure is when a loan returns to on-time payment status, and Radian recently admitted that many of its cures are achieved through loan modification programs. Loan mods tend to have large numbers of redefaults occur, and according to the latest data, 9% of all homeowners redefaulted on their loans in July -- only slightly better than the 10% that did so in June.
Radian's stock is up 73% in 2012 and has more than doubled from its lows. Considering that the industry is still weaker than it appears and that the gains it's made are based on ephemeral support, I'm rating Radian Group to underperform the market on Motley Fool CAPS, but you can tell me in the comments section below if you think the mortgage insurer has a firm foundation to build upon.
Big wheels keep on turning
Having capitulated to the EPA's demands over its emissions technology, trucking giant Navistar International
Unlike PACCAR and OshKosh -- which use EPA-approved technology to get past tough, new air quality regulations -- Navistar had long challenged the agency that its cheaper alternative should be accepted, but it was forced to cave in as sales plummeted as it became apparent truckers didn't want non-compliant vehicles.
Although GAAP earnings were $84 million, or $1.22 per share, adjusted results showed losses of $1.63 per share, worse than the year-ago period and below analyst expectations. Still the hope is that with a new management team, a new focus on improving sales, and Carl Icahn still buying company stock, it's believed the trucker can turn this big rig around. Let me know in the comments section below if you think Navistar International will end up jack-knifing on the road to recovery.
Because I said so
An analyst at Credit Suisse says investors are too enthusiastic in their belief the anti-obesity market will enjoy multiple winners, but if there is going to be one, Orexigen Therapeutics
No doubt that comes as a big shock to investors at Arena Pharmaceuticals
The analyst says the market can barely sustain one blockbuster treatment, let alone three (VIVUS
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