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A Pair of Stocks With an Amazing Quarter

By Rich Duprey - Apr 1, 2013 at 3:28PM

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These stocks soared over the last three months, but are they about to make a return trip to Earth?

As the old investing maxim suggests, investors looking for the best gains should search among the ne'er-do-wells of the market. As the Dow Jones Industrial Average tacked on another 52 points to close out a holiday-shortened week, the best performer on the index was one of its biggest dogs, Hewlett-Packard, which surged 68% over the last three months.

While its turnaround has been remarkable, as the Fool's Richard Saintvilus cautions, investors would be wise to take a go-slow approach. Revenues are still slack, the PC business is anemic, and rivals like Oracle are also hip-deep in the few new areas it can exploit, such as big data. We all cheer when an underdog makes good, but that's slightly different than putting your money into play on its stock.

Yet there were some stocks that did even better than the Dow or even HP, but you should still 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.

Banking on the unbanked
If there was a biotech as much in the doghouse as the tech giant, it would be Keryx Biopharmaceuticals (KERX), which saw its shares plunge 75% in one day  after its colorectal cancer treatment perifosine failed to perform any better than a placebo. Following that debacle, it chose to concentrate instead on its other drug, Zerenex, a therapy for patients with end-stage renal disease who suffer from elevated phosphate levels.

Despite the end-market not being as large as that for perifosine, investors have better hopes for success with Zerenex. Better to get a bigger slice of a smaller pie than none at all. That thinking paid off earlier this year after Keryx reported that phase 3 results found a statistically significant improvement in patients taking Zerenex versus a placebo. Patients saw their mean serum phosphorus levels decline during the four-week assessment period, while those taking a placebo saw their levels go up.

Since then Keryx has traded in a fairly tight range around the $7-per -hare mark and likely won't move beyond that until it comes time for its day of reckoning before the FDA, which many expect will be successful. As the Fool's Maxx Chatsko notes, however, it will need to sign on a partner if it wants to gain any real success with the drug, since it has little to no experience marketing successful products on its own.

One would think the potential for a successful pairing will be much greater if the FDA regulatory labyrinth is appropriately negotiated, though with its stock still trading at points higher than when the excitement was building up, investors just might witness another "sell the news" event.

Staying afloat
Best Buy
(BBY -1.31%) was another company considered down for the count, having apparently lost all its business to Amazon.com because of "showrooming."

While its once-and-future chairman and founder Richard Schulze would likely still want to take the retailer private, a funny thing happened on the way to Best Buy's funeral: the company business stabilized. Sure, same-store sales tumbled more than 6% in the quarter, but overall sales rose and earnings came in well ahead of Wall Street estimates, albeit significantly below last year's effort. But with a series of cost-cutting initiatives in hand, a CEO with the respect of the financial community, and the company's founder back on board, the business of Best Buy seems like it's back on track.

Not to say that the business is great and the forces that brought the electronics superstore to its knees aren't still in place, but its website was one of the most trafficked sites on the Web over the Christmas holidays, and it has adopted policies to minimize the impact showrooming has on its top and bottom lines.

But that doesn't make the stock a buy, let alone a "best buy." It's doubled in value off its 52-week lows, meaning the easy money's already been made. I'd like to see the electronics retailer carry through on some of its promises before moving this stock off my watchlist and into my portfolio.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$72.36 (-1.31%) $0.96
Keryx Biopharmaceuticals, Inc. Stock Quote
Keryx Biopharmaceuticals, Inc.
KERX

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