Are these Monday Movers Going Higher?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Typically, it doesn't take a lot for a stock to trade with gains of more than 5% in a session; it can be caused by an analyst's remarks, sometimes it's caused by earnings, or maybe it’s just a technical rally. Sometimes the moves are warranted and other times they are not. Therefore, I am looking at several moves higher to determine if the stocks are presenting value or are value traps.
Bouncing off the bottom
After reporting that its Phase 3 trial for ThermoDox failed, Celsion (NASDAQ: CLSN) fell over 80%, but has rallied 20% during the last three sessions, including 10% on Monday. There was nothing to spark the movement, therefore it was a technical rally.
The stock now has a market cap of just $50 million, after being valued at $330 million last year. In my opinion, there is no reason to buy this stock. A biotechnology company’s stock is valued according to its lead candidate or pipeline, and the stage at which the company is in the clinical process. Celsion is now going back to the drawing board, and there are no guarantees that it will be able to weather this storm. Therefore, I wouldn’t chase the hope for quick and meaningless gains.
Are Institutional Investors a Sign of a Turnaround?
Shares of beaten-down stock Diamond Foods (NASDAQ: DMND) rose 11.24% on Monday after the company disclosed in a 13G filing that BlackRock upped its stake to 7.85% last week. This is a stock currently priced at $16.03 that traded at $90 a couple years back.
The management has been shaky at best yet the company’s revenue remains somewhat stable and its stock continues to trade remarkably undervalued. This is a high-risk investment but with investors being so quick to buy fallen stocks, I think it’s very possible that Diamond becomes the next Research in Motion, First Solar, etc.
Solar Stocks Rally
Rather than looking at just one stock let’s take a peek at an entire space that is trading higher: solar stocks. On Monday news that bankers are close to securitizing solar panel leases into bonds created gains for the entire industry. If this change occurs then solar bonds would package panel leases and be supported by electricity purchase commitments. This could lead to more consumers electing to use solar panels.
SunPower (NASDAQ: SPWR) led the space in gains, trading higher by almost 10%. Last week I said that SunPower’s fall after earnings was illogical, and I find it interesting that investors are rushing back to buy the stock so quickly. If these “solar bonds” do occur, then break down the space into which stocks are cheapest and which companies have the greatest exposure in the U.S., SunPower is a good start.
Social Continues its Post-Earnings Effect
LinkedIn’s (NYSE: LNKD) strong quarterly beat continued to push the social media space higher, as it rallied by almost 5% and other companies such as Jive and Zynga also saw a boost in gains. Last week I said that because of LinkedIn’s breakout that it could, and most likely would, trade higher after this week. The stock is now in uncharted territory after a year of flat trading. Therefore, despite the potential for quick gains I would avoid this stock at all costs. It’s simply too expensive and presents no value to the long-term investor.
A stock’s performance during a typical day does not necessarily mean that a stock will break out 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 has no position in any stocks mentioned. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of LinkedIn. 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!