Please ensure Javascript is enabled for purposes of website accessibility

Whoa! What Just Happened to My Stock?

By Rich Duprey - Apr 3, 2013 at 12:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These stocks had a big day yesterday, but are they about to make a return trip to Earth?

UnitedHealth Group (UNH 1.31%) was yesterday's big winner among the Dow Jones Industrial Average components, which itself jumped 90 points yesterday. The managed care provider continues to ride higher the news that the Centers for Medicare and Medicaid Services will likely increase premiums 3.4% instead of decreasing them as previously expected. The sector in general continues to outperform the index, with Humana, WellCare Health Plans, and Aetna all rising by 3% or more.

Even though the Dow moved higher, less than half of the stocks listed on the major exchanges followed suit, though there were some stocks that did even better than the managed care companies and surged by double-digit percentages. 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.

Going in reverse
If you forgot about the reverse stock split wireless broadband specialist Alvarion (ALVR) was effecting, then when you looked at the 900% jump in its stock yesterday you might have clutched your chest for a moment at the stunning return. In reality, it just gave investors one share for every 10 they owned, which increased the share price from $0.36 to $3.60 a stub. While it did close out the day at $3.75, a nice 4% increase, reverse splits are signs of financially troubled companies, and investors would be wise to use caution here.

Brokerage house BGC Partners (BGCP 0.95%) may not have had such a tremendous run-up when compared to Alvarion, but the 49% gain it recorded yesterday was impressive nonetheless as it sold its electronic bond trading platform to Nasdaq OMX Group for $750 million.

The eSpeed division had accounted for around 6% of BGC's revenues last year, so the fact that the selling price was equal to its market cap before the trade is a huge premium for the company. More important, however, is if the Nasdaq exchange can generate $25 million in revenues annually from eSpeed, BGC will receive additional consideration for it that could bring the total transaction value to $1.2 billion .

The brokerage house generated about $3.1 billion last year, according to Bloomberg, which would put revenues from eSpeed at about $18 million or so. Regardless, it got a nice payday as it was so any additional compensation would just be gravy.

An offer you can't refuse
Suddenly everyone wants to buy Obagi Medical Products (NASDAQ: OMPI), a maker of skin care products. Two weeks ago Valeant Pharmaceuticals (BHC -1.41%) made an offer of $19.75 per share, or $344 million, for the company -- a near 30% premium for the stock -- but yesterday privately held German firm Merz Pharma Group upped the ante and made a bid to buy the company for $380 million, or $22 a share.

With interest in the company getting frothy now, investors pushed the stock price above the bid, believing Valeant may come back with an improved offer or a third suitor may yet emerge. Obagi generated just $120 million in revenues in 2012, with about half of it coming from its anti-aging cream Nu-Derm, so the bidders are counting on getting more bang for their buck if they're successful.

Yet the offer by Valeant and acceptance by Obagi surprised and disappointed Merz, and it scolded management in a letter it filed with the SEC. It had been in the middle of negotiations with the skin care products manufacturer at the time, but preferred to negotiate in private. Now that Obagi's management did an end run around them, they have to take a different route.

Investors haven't been happy with Obagi's management, either, with one of its biggest, Voce Capital, calling for the board of directors to be "cleansed" of its conflicts of interest, and it looks like sooner or later they'll all get their wish of dealing with someone new in the executive suite.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
UNH
$492.08 (1.31%) $6.35
Aetna Inc. Stock Quote
Aetna Inc.
AET
Bausch Health Companies Inc. Stock Quote
Bausch Health Companies Inc.
BHC
$9.79 (-1.41%) $0.14
Nasdaq, Inc. Stock Quote
Nasdaq, Inc.
NDAQ
$147.71 (1.08%) $1.58
Humana Inc. Stock Quote
Humana Inc.
HUM
$441.39 (0.40%) $1.77
BGC Partners, Inc. Stock Quote
BGC Partners, Inc.
BGCP
$3.18 (0.95%) $0.03
Alvarion Ltd. Stock Quote
Alvarion Ltd.
ALVR
WellCare Health Plans, Inc. Stock Quote
WellCare Health Plans, Inc.
WCG

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.