Whoa! These Stocks Just Took Off!
Apr 11th 2012 3:16PM
Updated Apr 11th 2012 3:18PM
The reality of the lousy jobs report issued last week couldn't be concealed no matter how hard the Bureau of Labor Statistics massaged the numbers, and the Dow finally fell through the 13,000 mark. While the stocks below strapped on rocket packs, 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. 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? Yesterday the markets fell 130 points, or 1%, so stocks that went appreciably higher are pretty big deals. But let's see whether they're truly headed into orbit.
CAPS Rating (out of 5)
|AOL (NYS: AOL)||*||43.3%|
|Great Wolf Resorts (NAS: WOLF)||*||13.1%|
Source: Motley Fool CAPS.
You've got money!
From social outcast to belle of the ball, AOL moved through the ranks of tech society and is being hailed as a shrewd operator for snaring $1 billion from Microsoft (NAS: MSFT) for patents that a week ago -- heck, even Sunday -- people would have suspected were worth a tenth of that. So while AOL is being feted right now, I'm not sure its fortune will last.
Microsoft got 800 patents from AOL relating to online advertising on mobile handsets, while licensing an additional 300 more. That makes it a fairly rich purchase indeed, as it values the patents at about $1.3 million each -- even more than the $1.05 million per patent the consortium of companies paid for Nortel Networks' patents.
The likely reason Microsoft was willing to pay so much for what everyone assumed was worthless intellectual property is its battle with Google (NAS: GOOG) and the growing dominance of Facebook. The patents are valuable not so much for the revenue they'll contribute, but rather the cudgel they'll provide Microsoft to club its rivals in court. What Microsoft acquired essentially was IP related to the birth of instant messaging, social networking, search, security, advertising -- patents designed before many even knew what most of those things were.
AOL gets a boatload of cash that lets it live awhile longer. I've rated the media company to underperform the markets on CAPS, and this deal does nothing to change my outlook on its future. CAPS All-Star Geldej seems to have a similar outlook on its prospects: "Company may not be going dramatically down anytime soon but I defiantly don't see it beating the market anytime soon."
I suspect the big run-up in its shares will dissipate soon enough, so add AOL to the Fool's free portfolio tracker to see how long the euphoria lasts, and then tell us in the comments section below or on the AOL CAPS page if you think this is the beginning of a turnaround for a once-vaunted company.
Hungry like a wolf
After missing the chance to buy Cedar Fair several years ago when a hedge fund took a large chunk of the theme park operator's stock to prevent the deal from occurring, Apollo Global Management required Great Wolf Resorts to adopt a poison pill defense in exchange for an offer to buy the company for $5 a share (subsequently raised to $6.75 a share). Great Wolf complied, but instead of seeing someone incrementally buy up shares of outstanding stock to thwart its efforts, private equity fund KSL Capital Partners simply made a competing offer to buy the whole company for $7 a share (up from its original offer of $6.25).
Great Wolf's stock continues trading above both offers in expectation that the price will go even higher, and there's speculation as to whether we'll see a bidding war erupt, such as occurred between Dell and Hewlett-Packard as they fought for 3Par.
CAPS member TrojanFan correctly called the higher offers coming in, and now it's a matter of waiting and seeing whether there will be tit-for-tat bids.
Playing for an increase in the takeover offer here. The number of dissenting factions involved and the low EBITDA multiple implied by the Apollo offer as well as the shareholder litigation and the fact that the market is bidding right through the $5 offer all imply to me that the original Apollo bid is going to get retraded.
Tell me if you agree on the Great Wolf Resorts CAPS page, and then add it to your watchlist to see just how high they're willing to climb.
Going into orbit
These two companies may have divergent futures despite their short-term bounce, so check out for free the one stock The Motley Fool thinks will break all the rules to win. Hurry though, because the free look at the new report, "Discover the Next Rule-Breaking Multibagger," is available for a limited time only.
At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft and Google. Motley Fool newsletter services have recommended buying shares of Google and Microsoft. Motley Fool newsletter services have recommended writing covered calls on Dell. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.