Monday Winners: DollarThrifty Back in Play

David Sterman's picture

Monday, May 3, 2010 - 12:01pm

by David Sterman

It's fun to be courted by two suitors. Rental-car firm DollarThrifty (NYSE: DTG) is back in play just days after Hertz (NYSE: HTZ) agreed to acquire the firm. Not so fast, says Avis Budget (NYSE: CAR), which hopes to top Hertz’s bid. Dollar Thrifty is no belle of the ball, and is really more of an also-ran. But each of the bigger rivals simply wants to keep DTG from falling into the hands of its rival. Shares of DollarThrifty are up another +6% to $50, as Avis has promised a bid that is “substantially higher” than Hertz’s $41 a share offer. Avis’ executives are upset that DollarThrifty previously rebuffed Avis’ buyout overtures. But DollarThifty’s Board has a responsbility to give Avis a fair hearing. If Avis comes up with a counter-offer, can a counter-counter-offer from Hertz be far behind?

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Companies remain stubbornly slow to rebuild their depleted workforces. But they are starting to make deeper investments in payroll management -- a potentially bullish sign for eventual hiring. That’s the view from Administaff (NYSE: ASF), which just posted surprisingly robust first-quarter results. That’s quite a turnaround from last quarter, when rising health care costs yielded an unexpected quarterly loss. With today’s +17% gain, shares have continued a nice rebound that has generated a +50% return since mid-February. But investors should note that this isn’t a high-growth company, and the stock is unlikely to garner a price-to-earnings (P/E) multiple much beyond the 20 to 25 times projected 2011 earnings that it currently garners.

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As we saw last week, positive news regarding a clinical trial for a new drug can have a dramatic effect on a stock price. Raptor Pharma (Nasdaq: RPTR) is today’s biotech hero, as its stage 2 trial to treat patients with liver disease yielded positive results. But the trading action highlights an important lesson for most investors: Unless you are right near a computer when positive news hits the wires, you're better off waiting for the dust to settle before investing in a high-flying stock. Raptor’s shares spiked from $2.54 to $3.88 in a matter of minutes – good for a +53% gain. Shares soon gave up much of those gains as day-traders, only in it for a quick thrill, moved onto the next hot trade. By being patient, you can buy shares of Raptor for closer to $3 than the nearly $4 shares fetched mid-morning.

Is the new lower price a bargain? Perhaps, but only for a small portion of your portfolio, since shares could easily drift lower as the euphoria fades. Then again, the biotech firm is working on several promising applications, and recently bolstered its balance sheet, so cash won’t be a concern in the near-term. Any further stock price strength could create a virtuous circle. That’s because management may signal a desire to raise even more money, which would bring more analysts into the mix. Analysts often provide bullish new coverage whenever their bankers have a shot at raising dough for a company. But if you see this or any other stock pushed up by gushing analysts, you may want to book profits, as a share-diluting secondary stock offering may be on the imminent horizon.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.