Whoa! What Just Happened to My Stock?
Aug 12th 2011 8:57PM
Updated Aug 12th 2011 8:58PM
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.
CAPS Rating (out of 5)
|A123 Systems (NAS: AONE)||***||45.1%|
|Insmed (NAS: INSM)||****||29.5%|
|Talbots (NYS: TLB)||*||23.2%|
Whee! Isn't this fun? Anyone else getting seasick from the rolling waves of the market's tumult? After falling more than 500 points the other day, it soared 423 points yesterday, or 4%. So stocks that went higher, even marginally, are remarkable, let alone pretty big deals.
Higher and higher
Investors loved the news that General Motors (NYS: GM) selected A123 Systems as its supplier for battery packs for its electric vehicles. The terms of the deal weren't disclosed, but A123 said it expects to build tens of thousands of battery packs for GM's cars.
This is supposed to be the time when EV battery makers A123, Ener1, and the others come into their own. A123 used funds it received from President Obama's stimulus program to build the plant where the GM batteries will be made, and Johnson Controls (NYS: JCI) is opening an advanced battery facility, also built with tax money. According to the Energy Department, the stimulus plan supported the building of 30 facilities across the country that will have the capacity to support 500,000 EVs by 2015.
Yet before you join the rush to buy in to buy A123, consider that GM can't sell the current electric vehicles it has on the lot. It sold just 125 Chevy Volts in July and only 3,071 since the model was launched in 2010 -- hardly the groundswell of demand to support "tens of thousands" of battery packs. Nissan hasn't done much better, selling less than 3,900 Leafs.
Another thing I don't like about this company is its terrible cash flow. The company has been losing an increasing amount of cash every year. That's not a very good business if you ask me. In fact, the company has more in CAPEX than it does in revenues. Only an idiot would invest in this trash stock.
The company may have been investing a lot of the money into expanding its capacity in anticipation of winning some deals like the one with GM, but drive over to the A123 Systems CAPS page and give us your opinion. Do you think this supply agreement will be enough to jumpstart the stock?
Calling all bulls
Does announcing that your CEO will be speaking at an analyst conference really warrant a 30% jump in your stock price? If you're biopharmaceutical Insmed, it might.
With no other company-specific news driving the stock higher, it might also be speculation that the company will report positive developments on its lung-infection therapy Arikace. Insmed was absolutely crushed at the beginning of the month, when the FDA did an about-face and ordered the biopharmaceutical to halt testing of the drug until it examined data on how Arikace affected rats.
After reporting earnings the other day that showed larger losses than Wall Street anticipated and revenues that were nearly cut in half, management reiterated its view that the rat study that concerned the FDA ultimately won't be a problem. "After reviewing the data," the company said, "we believe we have a sound scientific rationale for those findings," and it thinks it can resume its studies in the fourth quarter. The analyst conference may be the first step in laying out its case.
The CAPS community remains supportive of Insmed's potential, with 94% of the members who've rated the biopharmaceutical believing it will outperform the broad market averages. Add Insmed to your watchlist, and then head over to the Insmed CAPS page and let us know whether you think this conference can breathe new life into its plans.
A bitter pill
Thomson Reuters says consumer confidence sank to 54.9, a level not seen since Jimmy Carter was president. But consumers are still shopping, with retail sales inching 0.5% higher in July. Macy's (NYS: M) surpassed expectations for the month, as did Nordstrom (NYS: JWN) .
Yet the strength at department stores could pose a problem for apparel-store chain Talbots, which has been undergoing a restructuring as it tries to shed its uptight image. If department stores can lure shoppers away from specialty retail outlets like Talbots, it makes any turnaround more difficult.
Private-equity firm Sycamore Partners is willing to help out, taking a near 10% stake in the retailer. Talbots said "thanks, but no thanks" and adopted a poison-pill defense. Although such shareholder-rights plans are oftentimes seen as being unfriendly because they keep management entrenched, other times they can keep someone from unnecessarily breaking up an otherwise worthwhile business.
If CAPS All-Star sentiment is any indication, however, Talbots sits more with the former than the latter, as just 38% of those rating the retailer think it can outperform the broad market averages. Let us know in the comments section below or on the Talbots CAPS page whether you think this retailer should take the bitter medicine.
Going into orbit
That's why 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 re-entry or off to infinity and beyond.
At the time this article was published Motley Fool newsletter services have recommended buying shares of General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.