Whoa! These 3 Stocks Easily Beat the Dow

Another day, another dollar, and another record high for the Dow Jones Industrial Average, which tacked on another 42-point gain yesterday, to bring the index to its highest levels ever. Fueled by cheap, easy money, traders can thank the inflationary policies of Fed Chairman Ben Bernanke for bringing the stock market out of the doldrums of the recession. The rest of the economy, not so much. GDP growth is still anemic, and the Congressional Budget Office believes as many as 700,000 jobs could be lost in the months ahead, as sequestration wends its way through the economy. 

The three stocks below, however, had their own causes to celebrate; but 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, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.

Company

% Gain

Vical

15.4%

magicJack VocalTec

12.5%

Diamond Food  

9%

Conference call
There was no company-specific news to account for the jump in Vical's stock, but management did give a presentation at a health-care conference yesterday morning, so perhaps someone liked what they heard. Or maybe they were anticipating someone hearing something they liked, because, while the price rose throughout the day yesterday, it really spiked at the end of the trading session.


Yet, there didn't seem to be any follow through after the markets closed. No big announcements. No additional clarity. Not surprisingly, the stock has pulled back in early morning trading today, and is down about 5% now.

The biotech focuses on vaccines and gene therapies, and Vical expects to announce sometime this year results from a phase 3 study of its metastatic melanoma treatment Allovectin, a drug it estimates has a market opportunity of more than $500 million annually. It believes the therapy offers many benefits to Bristol-Myers Squibb's  leading treatment Yervoy, such as being able to be given in an outpatient setting, and having a better safety profile.

With another conference due in less than two weeks, perhaps Vical will reprise its performance there, though the real test comes from its clinical trial results.

Opportunity still calling?
Internet phone service specialist magicJack VocalTec also spiked for no discernable reason; but, after plowing the stock down 59% from its 52-week high, to $11 a share, perhaps the short-sellers are closing up shop, and fueling a bit of a squeeze play. The most recent data shows the number of sales sold short dipped ever so slightly, to 4.8 million shares, equating to a short interest ratio of more than 17 days to cover. That's the number of days it would take to completely "cover" all the short position (i.e., buy back all the shares sold short). The Motley Fool thinks anything over seven days is a lot, so situations like this can serve to feed on itself.

Following the resignation of the company's CEO in late December, a blogger charged, in early January, that the VoIP company had misstated its earnings in an attempt to boost profits ahead of a secondary offering.  The company rebutted the allegations, calling them "clear and utter lies,"  but they're still hanging out over the company's operations and, even after yesterday's bounce, the stock is still down 23% for 2013.

With shares up another 4% so far today, we'll see just how long it takes for short sellers to hang up their positions.

That's just nutty
Rounding out our trio of companies moving higher for no discernable reason was troubled nut grower Diamond Foods, which recently emerged from a months-long investigation into improper payments made to farmers. This resulted in the company needing to restate its financials. Last month, the investment house BlackRock figured it had put its unsavory past behind it, and took a large 8% stake in Diamond as a vote of confidence. Good timing, because shares have since gained nearly 25%.

While it does have a large short interest at seven days to cover, that's down from 17 days at the end of January, as the average daily volume traded in the stock has more than doubled. 

With gains that are made on nothing more than ephemeral market feelings, it's hard know if they'll hold for any appreciable length of time. While Vical has something substantial to hang its hat on eventually, that decision date is still some time in the future. I see all three stocks eventually retracing their gains until they're able to show something concrete upon which they can build.

Whoa, Nelly!

While you can certainly make huge gains in biotech and pharmaceuticals, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

 

 

The article Whoa! These 3 Stocks Easily Beat the Dow originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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