Nearly all stocks move, at least to some extent, on reports that are released from or about the company. But some stocks are particularly volatile based on news reports, analyst predictions, and product reviews. Here we will take a look at three vastly different companies and see why their share prices are so news driven and why this trend is likely to continue.
The story of a start-up
What started out as an attempt by CEO Elon Musk to build an all electric sports car, has become a Silicon Valley car company worth about $5 billion as of this writing. In short, Tesla Motors Inc (NASDAQ:TSLA) shareholders have been rewarded greatly as the stock has more than doubled since its IPO and cutting through the psychologically restraining $40 per share level at the beginning of April.
But while Tesla stock is far more valuable today, it has not been a smooth ride, nor should investors expect the future to be one. As a start-up automaker, Tesla Motors Inc (NASDAQ:TSLA)’s line of business is nothing short of a high risk area which has destroyed countless other idealistic car makers over the past century. However, Tesla claims that it is emerging from what is known as the Valley of Death. The automaker expects to report a profit on both a GAAP and non-GAAP basis for Q1 2013 as deliveries of the company’s sole offering, the Model S, exceeded delivery targets by 250 cars. This announcement propelled Tesla shares higher causing them to gain around 20 percent at their peak before closing up nearly 16 percent on the day.
While the profitability announcement has served as a positive example of news on Tesla Motors Inc (NASDAQ:TSLA)’s share price, other events have wrecked havoc on shareholders over the past several months. Shares were hammered by a negative review of the Model S in the New York Times and recovered only to be driven down around 10 percent after the company reported disappointing earnings.
For companies in Tesla Motors Inc (NASDAQ:TSLA)’s case, the market is constantly hungry for any indicators as to Tesla’s success and the automaker’s future outlook. This causes sharp movements in the share price as investors buy or sell the flavor of the day. I remain bullish on Tesla Motors Inc (NASDAQ:TSLA)’s long-term future but caution that the company is a speculative investment coupled with the high volatility that accompanies a unique start-up like Tesla.
More than biofuel
Here we have a company that has found a productive use for all that green gunk that grows inside your fish tank. Solazyme Inc (NASDAQ:SZYM) grows a highly productive form of algae and collects the algal oils that are produced for a wide variety of purposes including biofuels, skin care products, chemicals, and health food offerings. Despite moving into all of these lines of business, Solazyme Inc (NASDAQ:SZYM) is often given the simple label of a biofuel manufacturer causing investors to ignore the company’s potential in its non-fuel segments.
Given the label of a biofuel producer, Solazyme Inc (NASDAQ:SZYM)’s stock tend to slide when little news is released about new partnerships which are often in non-fuel lines of the company. Between early March and early April, Solazyme stock slid from the mid $9 per share range down to the mid $7 per share range. Nothing fundementaly changed at Solazyme resulting in a “no news is bad news” trend for the stock. But even as many investors ignore Solazyme Inc (NASDAQ:SZYM)’s efforts beyond the biofuel business, numerous partnership announcements and highlights in news sources help to drive the stock higher when they are released. Following the March to April slide, Solazyme shares have since regained traction and moved into the low $8 range as of Apr. 12. The rebound began as Forbes featured Solazyme founder Jonathan Wolfson as a Forbes Disruptor of 2013. The article called attention to the potential of Solazyme’s algae oil business for uses beyond biofuels. After having no significant news over the past month, Solazyme Inc (NASDAQ:SZYM) returned to many investors minds who subsequently drove the stock back up.
Investors in Solazyme need to decide how they want to go about investing. I personally see the company as a long-term investment that will be driven by increased sales and revenues as its production facilities come on line. But this company also gives investors a way to play the volatility. For those who want to do this, they can buy after no news has been released for weeks and the share price is lower. Following the release of news, the stock may rise again as the market is again reminded of Solazyme Inc (NASDAQ:SZYM)’s business as beyond only biofuels.
News as a weapon
Few stocks ignite such investor passions as Research In Motion Ltd (NASDAQ:BBRY) which has seen wild share price swings ever since debuting its Z10 smartphone back in January. Both sides have accused the other of distorting information which has lead to the fueling of conspiracy theories about stock manipulation. Bulls see a potential for the new BB10 products to take back former BlackBerry users, attract and retain enterprise customers, and win Research In Motion Ltd (NASDAQ:BBRY) the third place slot in the smartphone market. Bears believe the company is too late to the game and still lacks many of the apps and features that would attract and keep customers.
These sides have been fighting a Research In Motion Ltd (NASDAQ:BBRY) based war for several months now and they have chosen the media as the battlefield. Targets from Jefferies, Morgan Stanley (NYSE:MS), and Wells Fargo & Co (NYSE:WFC) all give BlackBerry a bright future setting price targets well above current levels. But bears at Citigroup Inc. (NYSE:C) and Canaccord have given lower targets to BlackBerry. Each time an analyst puts out a report, the effect is only enhanced by the echo chamber that parrots whatever they say. Consequently, one report, however misleading it may be, can become fifty reports on that report with hours, swinging shares in one direction or the other.
Like the stocks mentioned above, I hold shares of BlackBerry in the more aggressive part of my portfolio. The day to day swings in the share price make for an interesting game to watch but I have learned to not become too attached to these lacking-of-actual-news swings, if I did I couldn’t ever get to sleep at night. Investors in BlackBerry need to be aware that the battle between bulls and bears, who likely have a lot more to lose than you do, is happening in your own backyard if you hold BlackBerry in your portfolio. This is not necessarily a reason to avoid BlackBerry, it is just something to expect when owning shares of such a dividing company.
News about the news
Tesla Motors, Solazyme, and BlackBerry have very little in common as a group but all three fall into the category of stocks frequently driven strongly higher and lower based on the day’s news. All three companies have the characteristic of having critical information that the investing public doesn’t know. As a result, analysts try to fill the void where they see a demand for information. While there are many analysts out there who do report their findings in the least biased way possible and to the best of their abilities, there is another group of “analysts” who distort information for their own personal gain. Investors in these three companies need to be aware that their investments are highly vulnerable to “pump and dump” and “short and distort” attacks in the short term. However, those investing for the long-term can take a degree of comfort in knowing that today’s news is just today’s news and that many other reports will surface over time to prove the true value of their investment.
Alexander MacLennan owns shares of BlackBerry, Tesla Motors , and Solazyme. The Motley Fool recommends Tesla Motors . The Motley Fool owns shares of Solazyme and Tesla Motors .
