How to Play Monday's Biggest Market Movers
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Monday the market traded with slight gains on what was a fairly quiet day. But on what seemed like a quiet day, there were some companies seeing significant changes to their market capitalization, with incredible movement. In this article I am looking at what moved each, and how to play the movement.
*As of 3:00 PM ET
- Acura Pharmaceuticals rallied as much as 80% on Monday after announcing the launch of its OTC drug Nexafed. The product is a pseudoephedrine product that relieves congestion with a unique technology that prevents it from being converted to methamphetamine.
- UniPixel rallied 44%, making its two day gains more than 70%. The large two-day rally followed news of a multi-million dollar licensing agreement with a large PC maker to introduce UniPixel’s parts. Investors are now speculating that more deals could be on the horizon.
- Zogenix fell roughly 50% on Monday after a government panel of pain experts advised the FDA to reject the company’s pain medication, Zohydro. The product was a much stronger version of hydrocodone, and the advisory panel listed several health concerns as the reason for the rejection.
- Molycorp popped 20% on Monday without the presence of any news. The stock has been on the rebound over the last three weeks and therefore creating a short-squeeze to push its shares higher.
- CombiMatrix added to its massive gains last Friday with a 31% return on Monday, giving it a two-day return of 370%. The large gains were a result of two studies published in the New England Journal of Medicine that supported the company’s technology.
I must say that in regards to each stock, there are some real dangers of investing at these levels. All present a great level of risk, although different levels of risk.
The launch of Acura Pharmaceuticals’ Nexafed leaves me with more questions than answers. The market for this product is very competitive, and because of this market there are too many choices for this product to be effective. Think about it, if you were looking to make meth, all you’d have to do is buy an alternative product on the shelf. Meanwhile, people who do not make meth have no reason to purchase Nexafed; they will most likely continue to use their product of choice. But if for some reason the company can begin to license its technology on a large scale then it could present upside. But until then, I don’t think it will be successful.
UniPixel’s news was significant and could be an indication of future deals. However, a 70% move is quite large, and I find it troubling that the company did not release the name of its partner. The press release implies that it’s a company such as Dell or Hewlett-Packard, but more than likely it is a company that no one knows. However, I must say, I am pulling for this company and I like its technology. I just don’t believe the move was worth the news.
Looking at the rejection letter for Zohydro, I’d be very surprised if the product is ever approved. The report noted deaths, addiction, safety, and a less than favorable classification. Due to the strength of the product, it would result in a higher rate of abuse than hydrocodone, and the FDA has become very cautious of such risks.
Molycorp is the one company that I think might be worth watching. The stock had aggressively fallen from over $70 to under $6 and is now bouncing off the bottom. However I would invest with caution when a stock pops to this degree without any news. At this point I think it could go either way; it could continue to rally or fall aggressively, therefore making it a high risk investment.
Finally, there is CombiMatrix, a company with gains over 350% yet trades with a market cap of just $11.4 million. The publication might have endorsed the company’s technology, but does not prove that CombiMatrix will be a success. However with a market cap of just $11.4 million, perhaps the risk is worth the reward. But my belief is that if interested you will be able to acquire much cheaper once the momentum dies down.
As you can see, I am not particularly optimistic about any of these big-time movers on Monday. All of the rallies look to be more technical versus fundamental, which usually results in loss. As a responsible investor I would take time to research and perform proper due diligence into each stock before buying, and I would not be lured in with the promise of quick gains. Because when a stock trades with this level of momentum, it can change directions fast, and you can lose substantial money before you have a chance to get out.
BrianNichols has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!