Beware of These 3 Booming Stocks
Jan 14th 2013 12:49PM
Updated Jan 14th 2013 1:35PM
Every Fool knows that investing success is primarily the result of taking the long-term time horizon into consideration, and ignoring the noise of day-to-day movements.
That said, one can't help but get a little excited when a stock makes huge moves over a relatively short period of time. Below, I'm going to give you three prime examples of "noise" you should be ignoring: three stocks that have posted impressive gains recently, but that long-term investors should continue to be wary of. Read all the way to the end and I'll offer up access to a sneak peek behind a Fool service led by one of our most successful stock pickers.
Research In Motion
Last Friday was indeed a strange one from RIMM's stock. Early in the day, reports were surfacing that BlackBerry customers in Europe, the Middle East, and Africa were having trouble accessing data. The problem had to do with a glitch in the Vodafone network that clients were using.
But as the day progressed, the company announced its ambitious plans for its new BlackBerry 10 platform. This will include one smartphone with a normal QWERTY keyboard, and one with a touchscreen -- with four more iterations being released strategically throughout the year. Obviously, investors were able to look past the data glitch and focus more on the future, as the stock was up almost 14% on the day.
But before jumping on this bandwagon, long-term investors need to take stock of the situation. RIMM stock has already more than doubled since late September, even though earnings and market share have fallen off a cliff. Furthermore, the company doesn't have multiple revenue streams like much of its competition.
Indeed, if its new operating system ends up being the envy of the industry, RIMM could be headed for better days, but that's a big bet to take on a company that's struggled to show it can keep up with Apple's iPhone and Google's Android operating system.
Next up is the biggest of the dying big-box retailers. Best Buy's stock was up an impressive 16% last Friday on the heels of its latest earnings release. Though international sales were down sharply and domestic sales were flat, it was online sales that saved the day, showing a 10% improvement from the previous year.
Indeed, it's good to see that the company is finally making significant inroads into the e-commerce business. But I think that over the next 10 years, this pop will likely be seen as a minor blip on the path to obscurity.
Best Buy's bricks-and-mortar business is still at a significant structural disadvantage when compared to what Amazon.com can offer its customers, both in terms of price and of the build-out of fulfillment centers that make the wait for Amazon to deliver its products negligible when compared to bringing something home straight from Best Buy's stores.
Finally, we have Rite Aid, the retail drugstore chain that somehow is still around. Believe it or not, the company's stock is up 40% over the past month alone!
I'll be the first to admit that, of the three companies I'm calling out here, this could be the one to prove me wrong. Prior to last month's earnings release of an actual profit, it had been an astounding 21 quarters in a row since Rite Aid had made any money. That's a pretty long losing streak.
As fellow Fool Jacob Roche recently pointed out, there have been some structural changes made within the company -- and with these changes, a return to profitability. It's tough to tell, though, how much of the recent success was due to Rite Aid's smart moves, and how much of it was simply due to the dispute between Walgreen and Express Scripts -- a dispute that has now been resolved.
Winning in the business of retail drugstores is no easy task. So although I applaud Rite Aid's recent success -- and acknowledge that there may be more to the story than I can see -- I'm still not going to be putting any money behind the company.
If you, too, would like to continue becoming a better investor, I suggest you get the inside scoop on what Motley Fool superinvestor David Gardner will be buying this year. He's crushed the market in his Stock Advisor and Rule Breakers portfolios for years, and now you can take a personal tour of his flagship stock picking service, Supernova, which reopens to new members tomorrow. Just click here now for instant access.
The article Beware of These 3 Booming Stocks originally appeared on Fool.com.Brian Stoffel owns shares of Apple, Google, and Amazon.com. The Motley Fool recommends Amazon.com, Apple, Express Scripts, Google, and Vodafone Group Plc (ADR). The Motley Fool owns shares of Amazon.com, Apple, Express Scripts, and Google. 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.