Many investors and traders know the thrills and profits that can be had from playing with momentum stocks. But the most important part of being a momentum investor is knowing how to separate great stock opportunities from those that have been pumped up for the wrong reasons. The stock markets present us with hot stocks every day, but only a few present top-notch opportunity for returns. Therefore, when a company has made extraordinary gains, it is important to make sure to understand why the gains have occurred. This will help us set the best stocks apart from the rest. (For background reading, see Momentum Trading With Discipline.)

Let's check out five companies whose stocks have produced relatively large gains this week, and have a strong bullish sentiment in the Stock Picking Community.



Company

Ticker

One-Week Gain*

Community Sentiment

Allegiant Travel
Nasdaq:ALGT 40.7% 100% Bullish

Northwest Airlines
NYSE:NWA 28.9% 87% Bullish

MasterCard
NYSE:MA 22.7% 79% Bullish

Wrigley
NYSE:WWY 22.7% 83% Bullish

Build-a-Bear Workshop
NYSE:BBW 21.9% 60% Bullish
*Data as of market close May 1, 2008

While these single-week gains certainly seem impressive, it's crucial to dig beneath the surface and try to see where the advances have come from. This will help us predict whether the price will continue to impress, or if it is time to ring the register and take the profits.

Northwest Finally Flying Again?
As oil dropped about 8% for the week, airline stocks began to take off, with the AMEX Airline Index surging 5% to just under 25 by midday on Thursday. Lower energy costs and merger talks have moved Northwest Airlines from our bears list to the bulls list in less than a week. Just this last Monday, we spoke of Northwest in Five Big Bears Ready To Roar, as it dropped 22% on record oil prices. This week, Northwest has made it all back, surging over 34% from a close last Friday of $7.56 per share. NWA closed Thursday at $10.16, for a five trading day return of almost 29%.

With two airlines on our bullish list this week, Northwest and regional carrier Allegiant Air, are we seeing the end of the vicious ups and downs that we have seen in the airline industry this year? Although the reasons for these two carriers' increases in stock price this week were different, I believe what will keep them flying high is the same.

Allegiant Air saw prices rise this week on reports that its traffic rose by more than 26% in April as it flew planes at a higher capacity. Increasing capacity almost 20% from 319.4 million available seat miles a year ago (the industry measurement for one available seat for one mile of travel) to 382.9 million. Capacity wasn't the only thing that Allegiant improved upon - it seems the company also used the additional capacity efficiently. Occupancy rates increased about 4% to a total average occupancy of about 85% of Allegiant's available seats. (For related reading, be sure to check read Is That Airline Ready For Lift-Off?)

Northwest's prices may be directly affected by oil prices; large drops in oil prices this week saw the stock's price rise. Last week's increases in oil price produced the opposite effect. Northwest is working on plans to become more efficient just like Allegiant has done. These efforts include Northwest's ongoing merger talks with Delta Airlines (NYSE:DAL). Northwest is already one of the largest airlines in the world, boasting about 1,400 daily departures from major hubs in more than 1,000 cities, including a new service to Taipei, Taiwan, from its hub in Tokyo. I find it difficult to believe that an airline of this magnitude could ever be as efficient as a smaller regional carrier, but I think the merger could mean more efficient service overall. If they are able to park less-efficient aircraft and carry higher capacities like Allegiant has done, these companies could have a bright future together.

Just like Stock Picking Community members jtwodrff and JStojak, I am still waiting for the merger of Northwest and Delta to bring these carriers back into the skies. Even after recent gains, Northwest is still trading at about $9.50, near its 52-week low of $7.06. Northwest's 52-week high is $26.50, which, assuming Northwest can do what it says and turn the company around, could leave a lot of upside potential.

Add Your Two Cents
What do you think will happen with the airlines going forward? Will large carriers be able to become as efficient as the smaller regionals, even in the face of rising energy costs? Will Northwest's aim of opening more global services pay off in diversifying their exposure away from the slowing U.S. economy? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

For more information on investing in turnarounds, read Turnaround Stocks: U-Turn To High Returns and Finding Profit In Troubled Stocks.

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