These Stocks Did Better Than the Banks

After more than a week's worth of losses, the Dow staged a strong rally and closed out Friday's trading session with a 203-point gain, or a 1.6% jump. That wasn't enough to erase all the losses, but it was a welcome reprieve and was due largely to JPMorgan Chase's beating of earnings expectations.

Yet some companies managed to rise even higher, by double-digit percentages. But resist the urge to high-five everyone in the cubicles next to you, since smart investors won't celebrate until they know why their stock surged. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

On the up-and-up
Of those three low-rated companies getting a generous bump beyond the indexes' gains, only Affymax has generated any enthusiasm over the past year. Truck-trailer maker Wabash National lost a quarter of its value, while Chinese solar shop Canadian Solar is down 60%, trailing along with an industry beset by an inventory glut and tumbling margins. So it's interesting that both Wabash and Canadian Solar were the beneficiaries of analyst upgrades that foretold a better future.

For the solar specialist, analysts at Piper Jaffray raised their rating to "overweight" and nearly doubled their price target to $5 a share from $2.70 on the "strength of the company's growing project business." Just the day before, the CEO at Canadian Solar said the company was mulling a decision to build a new facility in China that could produce 700 megawatts of solar cells.

Yet therein lies the problem. Semiconductor equipment maker Applied Materials (Nasdaq: AMAT) recently lowered guidance, albeit because of a slowdown in the PC business, but it also finds it needs to move its solar production to China to stay competitive amid higher costs. Having Canadian Solar build an equipment facility there, too, won't do anyone any good and will only keep the pressure on. Even if there is an upswing in demand, the pricing environment will devastate margins.

Wabash National received an "outperform" upgrade from FBR Capital with a $9-per-share price target, which translates into a 57% increase from where it was trading before the news. There's an upgrade cycle under way this year, and analysts expect Wabash to be the primary beneficiary, building on the strong first-quarter earnings report it issued in April. I'm more confident about this one than Canadian Solar.

Zacks points to industry estimates showing shipment volume is expected to climb 20% in 2012, and while the economy is still struggling and could prove to be a drag on business, the trailer maker reaffirmed its full-year shipment target of 50,000 to 56,000 units, which would equate to as much as 18% annualized growth. Truckers need to improve their units regardless of market conditions, so Wabash will rise with it. I'm marking it to outperform on Motley Fool CAPS.

Not an anemic reaction
Despite its low CAPS rating, shares of Affymax more than doubled over the past year, rising 120% as its anemia drug Omontys got FDA approval to take on industry giant Amgen (Nasdaq: AMGN), whose Epogen treatment has been the longtime standard of care. Yet there's a lot to suggest that it will be the upstart that rules the roost ... eventually.

The once-a-month treatment regimen will hold a lot of appeal to those who currently need to take Epogen several times a week. While the Fool's resident expert Brian Orelli rightly suggests it won't be a wholesale move away from a thoroughly time-tested therapy, it's easy to see that Amgen's ramparts are under assault. It will offer smaller dialysis centers a low-cost alternative to Epogen, but larger ones will want the option of having a backup, too. Affymax just signed on Japanese pharmaceutical Takeda to supply some 100 Fresenius Medical Care's dialysis centers with Omontys. Fresenius is one of the largest dialysis-center operators in the country.

The uphill battle for Omontys is evident in the nature of the short-term agreement. While both sides may want to test the waters first to see how well the drug is received, Amgen was able to sign a seven-year agreement with Fresenius rival DaVita to supply Epogen. As Brian noted, it's tough to argue with Amgen's success.

While going up against an industry giant may explain the hesitation among CAPS members to more fully back the biotech, I've gone and rated Affymax to outperform the broad market averages over the long haul. A more patient-friendly regimen, a lower price, and the potential for more such partnerships such as that inked with Takeda and Fresenius means that whatever the short-term pitfalls may be, the future is looking up.

With the stock now swinging even higher however, tell me in the comments section below or on the Affymax CAPS page how much higher you think it will fly, or whether investors will get burnt betting on a David taking on Goliath.

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