Veteran readers of the Small Cap Network website and newsletter will probably already have done so, but newcomers may need to hear it explicitly…. take profits on American Axle & Manufacturing Holdings Inc. (AXL) if you were in a trade because of our July 28th article “Five Great Stocks Under Five Dollars“. The stock has jumped more than 100% today thanks to an announcement that General Motors (GM) would rework an agreement with American Axle & Manufacturing that is almost the equivalent to winning the lottery.

At the time we suggested them, AXL shares were trading at $1.28 each. As of today, American Axle & Manufacturing Holdings is trading at $5.71 per share, translating into a gain of 346% for those who acted on the idea when it was published.

Here’s the core of the new deal….

• GM has pledged $110 million payment (to help recover AXL’s costs associated with the automaker’s bankruptcy process)
• GM will offer a loan facility of up to $100 million (through September 2013)
• American Axle will receive its second waiver extension
• GM will receive warrants for up to 20% of Axle’s common stock

In other words, American Axle & Manufacturing Holdings Inc. gets to live….. something the stock was hinting at well before today.

But isn’t all of this great news, and a reason to keep holding AXL shares? Yes and no. It’s great news, but a bird in the hand is worth two in the bush.

AXL may well keep on rising, but a 100% gain is a tough act to follow. The rally was based more on hype and euphoria than on numbers, and it could be a while before AXL shares are actually worth $5.71…. even if General Motors starts to crank out and sell cars like they did yesteryear (metaphorically speaking). If American Axle continues to rise, or dips sharply, you can always buy it back then. The sell recommendation is a simple matter of risk and reward; there’s not a lot of reward left to garner, but there is a lot of risk.

Or, here’s the ultimate hedge - sell half your AXL now, and keep half.

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We opened a can of worms last week when we pointed out how the S&P 1500 Wireless Index was a bearish freight train despite the fact that some - not all, but some - of these stocks were undeservedly being dumped. Mobile Telesystems OJSC (MBT) didn’t help the cause any today. Russia’s largest wireless service provider saw it’s net income fall 14.6% last quarter, on a 23% decline in revenues.

There’s a slight upside…. the $2.02 billion in sales was better than analyst’s expectations of $1.98 billion. And, the $563 million in income was stronger than analyst expectations of $541 million. There’s a problem though - even that number may be a little misleading. Had it not been for a fortunate currency exchange fluctuation, Mobile Telesystems would have knocked another $198 million off the bottom line for the quarter. In other words, MTS would have earned $365 million instead…. well under the $659 million earned during the second quarter of last year.

A handful of things have become clear….

1. The problems being experienced by most wireless companies are universal/global
2. Though Mobile Telesystems is an exception to this trend, revenues are largely dropping because subscribers are being lost
3. Incomes are up for the wrong reasons…… mostly because of expense cuts, but in MTS’s case because of currency swings

We still contend there are some very solid companies being thrown out with the baby’s bathwater, but at the same time we can’t encourage anyone to step in front of a bus until these little shots of troubling news have eased up.

By the way, we also looked at another wireless company’s earnings this morning - Virgin Mobile USA (VM). It was the same higher income/lower sales act we’ve been hearing from most of these stocks.

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Though it’s technically off our watchlist, we’ve still been unofficially following the continued progress of penny stock Applied DNA (APDN). Today we’re able to offer an updated overview of the company, where it is, and where it’s going. (It’s a Crystal Research Report, which as many of you know means it’s a very thorough and very fair look.)

The link is below, but first we wanted to chime in briefly about APDN’s chart.

Applied DNA fostered a wave of major progress early in the year, fanning the buying flames and pushing the stock all the way up to a high of $0.21 by early June. The ebb and flow pattern stopped then; shares moved back to the 10 cent area and simply traveled sideways for a couple of weeks. Over the last five days though, APDN has started to move again.

In other words, this penny stock is back in play.

I don’t think the prior trend lines (marked on the chart) are going to be a factor going forward, as that pattern was broken in June. Rather, we’ll just have to monitor the news and watch the chart one day at a time to find the turning points. As they become relevant, I’ll try and post more trading thoughts on APDN here.

In the meantime, the link to the Crystal Research report on Applied DNA can be found at the company’s website. Just click here to access the PDF.

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