Stocks Shaking the Investment World

By RICH DUPREY, THE MOTLEY FOOL
Posted 3:47PM 03/12/12 Investing
Article from The Daily Finance

Some stocks are one-hit wonders, making a big splash when they first appear, then quickly fizzling into obscurity or oblivion. But for other stocks, that initial big move is only a preview for even bigger and better gains to come.

Today, we're listing a pair of stocks that made some of the biggest upward moves over the past month -- despite the incredible volatility in the market -- and we're pairing them with ratings issued by our Motley Fool CAPS community. The higher each stock's rating, the greater CAPS members' faith in that company's ability to keep on beating the market.

Source: FinViz.com. One-month percentage change from Feb. 8 to March 9

While you were out, the markets rebounded, but they may turn tail again if Europe's fragile financial system falls apart. So before we get shaken out again, let's see why the CAPS community thinks some of these companies might continue to outperform the market.

Desperate times, desperate measures 

The Great Winnowing is under way at Sears Holdings. Chairman Eddie Lampert is not only selling off underperforming stores, but similar to calving off Orchard Supply, he'll be spinning off his Hometown hardware stores in an effort to raise some $770 million in cash.

While the markets are supporting the move by raising the stock price over 150% so far this year, it should be recognized that Lampert's previous minimalist efforts at rejuvenating the Sears and Kmart brands were a failure. Overshadowed by the spinoff hoopla was the latest quarterly results where sales fell 4%, comps were down 3.4%, and a year-ago operating profit was turned into a huge loss.

There is little to no value left in Sears itself. It has lost the battle and the war to Wal-Mart and Target, and the only thing Lampert has left is to raze whatever productive assets he can find.

I don't know that I'd short the stock here, since markets can be irrational for extended time periods, but I'd be careful buying in, too, because the realization will soon dawn that all that's left of Sears Holdings will become an empty shell. As CAPS member MajorBob04 notes, the assets sales are only a temporary salve:

Selling real estate provides a short-term boost. But long-term they still haven't fixed the revenue growth and profitability problem.

I've already marked Sears to underperform on CAPS, but tell us in the comments section below whether you agree Lampert's reign at Sears has been a disaster, then add it to your watchlist to see how it plays out.

Overweighting expectations

Weight loss in a pill -- without nasty side effects -- is what all of us couch potatoes are looking for. VIVUS has given us hope that it will succeed in our fight against fat without our having to actually eat right and exercise.

The biotech reported that an advisory panel recommended 20 to 2 that its weight-loss drug, Qnexa, be approved by the FDA. While the market fattened up VIVUS' stock, more than doubling its value before paring back a lot of those gains, I'm mindful of the FDA's capriciousness and its tendency to go its own way, particularly when it comes to weight-loss drugs. We've seen it before with VIVUS, and time and again with rivals Arena Pharmaceuticals (NAS: ARNA) and Orexigen Therapeutics (NAS: OREX) when their own weight-loss drugs got rejected. Qnexa may be the exception that proves the rule, but I'm not counting on it until I see the final FDA decision.

Of the CAPS All-Stars who made calls on VIVUS, 27% believe the company will still underperform the market. The All-Stars undoubtedly side with HoldThatWinner, who thinks fat loss in a pill is a losing proposition:

I don't care what they say. Nothing beats good ole fashioned exercise (and staying away from the Quad Burger over at Earl's).

Add the biotech to the Fool's free portfolio tracker and tell us on the VIVUS CAPS page if you think it will eventually collapse under the weight.

Shake, rattle, and roll 

These two stocks shook the market this past month, but the Fool has found one company that's digging up massive profits and is likely to continue to do so if the markets become rattled. Roll on over to get your free copy -- but hurry, because it's available only for a limited time.

At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart. 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.

Article from The Daily Finance

How to Get the Most From the Dow

By Dan Caplinger
March 10, 2012
Article from The Motley Fools

For millions of people around the nation, the stock market is the Dow Jones Industrial Average (INDEX: ^DJI  ) . The 30 stocks that make up the Dow encompass nearly every industry in the market, going well beyond core namesake industrial stocks to include companies from sectors that no one would ever think of as "industrial."

But if you settle for using the Dow, you're not getting the complete picture of the stock market. Later in this article, I'll show you the measure that gives you everything the Dow has to offer. But first, let's look at why the Dow Industrials don't quite get the job done.

Anatomy of an average

The Dow Industrial Average has evolved over the years. Early in its history, the 12 stocks that made up the average about 100 years ago included largely heavy-industrial companies. As the first member among the current Dow stocks to gain entry to the average, General Electric (NYSE: GE  ) was a fair representative of the dozen Dow stocks of the era -- and for the most part, it still is, despite its recent foray into financial services and other non-industrial businesses.

As the average evolved, the Industrial Average in particular expanded in scope to become almost a microcosm of the overall market. Restaurants, financial institutions, and technology companies now play a huge role in the Dow Industrials.

But the Dow still has two glaring omissions: transportation stocks and utilities. Those groups have their own averages to represent them, but keeping them separate means that most investors simply ignore the Dow Transports and Dow Utilities entirely.

The forgotten Dow average

If you want everything the Dow averages have to offer, you have to go beyond the Industrials, Transports, and Utilities to a fourth, often neglected Dow average. The Dow Jones Composite (INDEX: ^DJA  ) includes all 65 stocks that appear in the other three averages.

The advantage that the Dow Composite has is that it doesn't leave out any sector of the market. Given the importance of having a broad-based benchmark that reflects the movements in every part of the stock market, the Dow Composite does a better job of providing an all-inclusive snapshot of share prices.

The better Dow?

But the Dow Composite has its own quirks. Since it's a simple average, it's prone to the same price-weighting problems that the Dow Industrials has. And in fact, adding in the Dow Transports and Dow Utilities makes it worse.

Consider: If you add up the share prices of the Dow Industrials, you get a total value of about $1,700. The Transports add up to about $875, while the Utilities weigh in at about $550. Add that together and you get $3,125.

The bigger problem, though, is the relative weightings of those sectors. Even though the Industrials cover nearly all the sectors of the economy, they get just over half the weight of the Dow Composite, while the Transports get a disproportionately high weighting of more than 25%. And in particular, the individual stocks Union Pacific (NYSE: UNP  ) and FedEx (NYSE: FDX  ) together make up almost a quarter of the Transports' contribution to the Dow Composite. Both companies are reasonable representatives for their respective industries, and they've both performed in line with the economic conditions that they face. But for them to have so much more weight than similar companies in their sector, as well as other sectors that happen to have only a few low-priced stocks in the average, just doesn't make sense.

Good news coming?

Despite its shortcomings, the Dow Composite is confirming the multiyear highs we've seen in many other major market benchmarks. Unlike the Industrials, however, the Dow Composite is somewhat closer to its all-time highs from back in 2007. That's due largely to the transportation sector's contribution to the Composite -- but if the Dow Composite can set new record highs, it could be the first sign of a renewed bull market that could take stocks much higher.

Get it all

The Dow is a fine place to start looking for good investment ideas, but it shouldn't be the place you end your search as well. The Motley Fool's latest special report on retirement highlights three promising long-term stock picks from a variety of industries to give you the solid returns you need. 

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Article from The Motley fools