Even though the Dow moved higher, less than half of the stocks listed on the major exchanges followed suit, though there were some stocks that did even better than the managed care companies and surged by double-digit percentages. But you should still 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.
Going in reverse
If you forgot about the reverse stock split wireless broadband specialist Alvarion Ltd (USA) (NASDAQ:ALVR) was effecting, then when you looked at the 900% jump in its stock yesterday you might have clutched your chest for a moment at the stunning return. In reality, it just gave investors one share for every 10 they owned, which increased the share price from $0.36 to $3.60 a stub. While it did close out the day at $3.75, a nice 4% increase, reverse splits are signs of financially troubled companies, and investors would be wise to use caution here.
Brokerage house BGC Partners, Inc. (NASDAQ:BGCP) may not have had such a tremendous run-up when compared to Alvarion, but the 49% gain it recorded yesterday was impressive nonetheless as it sold its electronic bond trading platform to NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) for $750 million.
The eSpeed division had accounted for around 6% of BGC’s revenues last year, so the fact that the selling price was equal to its market cap before the trade is a huge premium for the company. More important, however, is if the Nasdaq exchange can generate $25 million in revenues annually from eSpeed, BGC will receive additional consideration for it that could bring the total transaction value to $1.2 billion .
The brokerage house generated about $3.1 billion last year, according to Bloomberg, which would put revenues from eSpeed at about $18 million or so. Regardless, it got a nice payday as it was so any additional compensation would just be gravy.