Are Any of These Moves Higher Warranted?

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Unless a stock is trading at a significant level of resistance, or following a large move either lower or higher, it doesn’t take a lot for a period of excessive volatility to create gains. A stock can see a 5%-20% gain higher for a number of reasons ranging from earnings to analyst notes. Sometimes the moves are warranted and other times they are not. Therefore, I am looking at several moves higher to determine if any are warranted.

Any Reason to Buy BlackBerry?

The market is looking for any and every indication to suggest that BlackBerry’s (NASDAQ: BBRY) new BB10 operating system will be a success. The stock had rallied over 100% in the last few months after years of significant declines due to a fundamental collapse. Now, the market thinks the BB10 is the company’s answer to its prayers, therefore the stock moved higher by 5%.

On Thursday, there were various pieces of news regarding the technology company that caused the movement. The company announced two new board members and was upgraded by Wells Fargo following an upgrade by Bernstein earlier this week. The Nikkei reported that the company would stop selling phones in Japan due to poor sales and that Indonesians are excited about the BB10, according to Twitter. This collection of news caused the rally, and further added to the excitement surrounding the stock.

My logical question to investors is if any of the news above is enough to warrant a $400 million increase in the worth of BlackBerry? My answer is no, and that none of the news over the last three months is enough to warrant its near $4.5 billion increase in valuation. All of the stock’s rally has been due to speculation, and although BB10 could very well be a success, there is no fundamental reason to believe it at this point. Therefore, as of now, it’s a value trap!

Time to Buy this Energy Stock?

Shares of Patterson-UTI Energy (NASDAQ: PTEN) rallied almost 11% on Thursday, to new 52-week highs, after blowing past Q4 expectations. The company posted an EPS of $0.40, beating the consensus by $0.12, and posted revenue of $653 million, more than $53 million better than expectations. The company had 205 rigs active at the end of the quarter, which was also more than Wall Street expected. Patterson-UTI saw a boost in pumping results, which was far better than expectations. Therefore, it’s safe to say that everything was far better than expectations. Yet because of problems within the space the stock has remained cheap compared to fundamentals. As a result, I say this could be the start of a trend higher as pessimism turns to optimism.

Could For-Profit Education Be on the Rise?

After a horrible year, shares of DeVry (NYSE: DV) provided a boost to the for-profit education space with a strong quarterly performance. The company still saw a revenue decline year-over-year of 3.6%, but both top and bottom line numbers were better than the consensus. The stock is not expensive by any measure, however what worries me is that enrollment continues to decline in a rapid manner. For the quarter, total undergrad enrollment declined 18% and new enrollment fell 16%. These are major facts that point to the future of this company. Therefore, despite strong earnings, I am not sure that the gains will be long-lived. The fact of the matter is that if enrollment continues to decline, as will revenue. And with near 20% declines, its fall in enrollment is showing no signs of slowing.

Can Apple’s Breakout Last?

After trading with very modest gains for most of the session, Apple (NASDAQ: AAPL) rallied almost 3% in the final hour of trading. Early in the session we saw gains due to pressure from famed investor David Einhorn. While this news may be insignificant, it forces you to acknowledge the value in a company that is growing by 20% with a forward P/E ratio of 7 minus cash. Furthermore, the stock jumped above its resistance at $460. However, I wouldn’t buy due to this fact alone, but rather because the stock is cheap and undervalued.

Conclusion

A stock’s performance during a typical day does not necessarily mean that a stock will breakout over a period of time. Too often we associate stock performance with fundamental performance, yet it’s the inconsistencies between these two factors that create value. The ability to identify these inconsistencies is a psychological behavior changing skill that very few investors are able to perfect. In the past, I have talked about this subject in great detail, and have taught investors how to change these tendencies to return large gains. My advice is to become a smart investor, by learning how to logically assess what caused a stock to move compared to its valuation. Then, if there is a distinction in value you are able to capitalize on the value.  


BrianNichols owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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!

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