Whoa! What Just Happened to My Stock?
Aug 1st 2011 2:37PM
Updated Aug 1st 2011 2:38PM
Resist the urge to high-five everyone in the cubicles next to you. Your stock may have just strapped on a rocket pack and taken off for the moon, but smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.
Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.
|ZOLL Medical (NAS: ZOLL)||*****||25.8%|
|Sify Technologies (NAS: SIFY)||**||21.9%|
|Regal Entertainment (NYS: RGC)||**||12.9%|
Do we get an up day today with a debt deal supposedly worked out? The market has recorded six straight down days, dropping almost 582 points in that time frame, or 4.5%. Friday was down almost 100 points by itself. So stocks that went significantly higher are worth checking out.
Higher and higher
If your company makes expensive, critically necessary medical equipment, as Varian Medical Systems (NYS: VAR) and Intuitive Surgical (NAS: ISRG) do, you're often at the mercy of hospital capital expenditure policies that rise and fall with the economy.
But it's a different picture at ZOLL Medical. It also relies on hospitals to buy its products, but defibrillators aren't nearly as cost-prohibitive as robotic surgical equipment or giant cyclotrons that smash cancer cells to bits. ZOLL was able not only to report a 65% increase in profits from a 22% jump in sales, but also said third-quarter profits would rise ahead of expectations and the full year is looking much better, too. Investors' hearts skipped a beat as they bid up the medical device maker's shares.
CAPS members are also aflutter; 94% of those rating ZOLL think it will outperform the broad market averages. Jump-start the discussion by adding your thoughts to the ZOLL Medical CAPS page.
Coming up short
You're bound to get motion sickness following the ups and downs of Indian Internet service provider Sify Technologies. One week its stock is falling through the floor while the next it is poised to hit new highs.
This time around, Sify was able to shake off concern that management had delayed reporting an updated share count that showed significant dilution as the company went from 53 million shares outstanding to 178 million. Not that it was really a fault of Sify, since the company's American depositary receipts report only twice a year and it increased the number of shares in between the filing deadlines.
Since it had properly announced it issued 125 million heavily discounted shares to investors with ties to the CEO and his brother, any fault should lay with investors not paying attention and the Nasdaq exchange, which failed to update its records.
Closely tied with Sify's past performance has been Indian Internet portal Rediff.com (NAS: REDF) , which is counting on a burgeoning population and a government intent on spending a lot of money to increase broadband access. Those trends will work to Sify's advantage, too.
While the two have been marching in lockstep lately, Rediff barely registered any gain at all Friday, as Sify reported a 31% increase in second-quarter sales that narrowed its GAAP loss to just under $2 million. CAPS member tland454 believes Indian demographics will continue pushing Sify higher: "Sify provides Internet service for an area of the world that is underdeveloped in Internet connection services.. As demand increases for their service this company will be well positioned to profit."
Add the Indian Internet specialist to your watchlist to keep tabs on whether its stock will be a portal to future growth.
Up in lights
Investors gave movie theater operator Regal Entertainment the royal treatment last week as it reported higher revenues and profits despite a dearth of blockbuster films. With Harry Potter and Transformers 3 lighting up the big screen, it's not surprising some investors are expecting to see Regal's name up in the big lights.
Compare Regal's performance with that of big-print format leader IMAX (NAS: IMAX) , which recently saw its shares treated as if it were some B-movie starlet. That dearth of blockbusters, particularly ones that would mesh well with IMAX's big screens, caused the company to come in well under analyst expectations and the market sold off the stock.
Regal operates some 6,700 screens, a third of which are digital systems, and a quarter of those are 3-D capable. It expects by the end of 2012 to have all its screens digital, and 40% capable of running 3-D versions. Yet right now 3-D remains a shlocky gimmick, for all the promise Avatar held, and consumers are going to be reluctant to shell out the premium prices 3-D movies command if it's just tripe that's being shown.
At almost 30 times trailing earnings, Regal trades at a hefty premium to both IMAX and Cinemark. While Wall Street is almost unanimous in its belief that the theater operator can beat the indexes, the CAPS community is a little more sanguine, though still bullish, with 82% of those rating it looking for outperformance. However, its low two-star rating suggests they think there are better places for your money.
Let us know in the comments section below or on the Regal Entertainment CAPS page whether this is an A-list leader.
Going into orbit
It pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock's headed for reentry, or off to infinity and beyond.
At the time this article was published Motley Fool newsletter services have recommended buying shares of Intuitive Surgical and IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.
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