More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news and other short-term forces can send individual stocks up by 10%, 25%, even 50%. For example, news of a boost in political advertisements in August lit a fire under shares of newspaper publisher Media General and more than doubled the stock last Thursday.

But beyond less-predictable events like that one are stocks with fundamentally compelling reasons for recent momentum. The trick is to find those stocks. That's where Motley Fool CAPS comes in.

The story behind the story
CAPS is no crowd of lemmings. Its best-performing members' opinions do more to shape each company's rating than the picks of their poorer-performing peers. Let's use the collective wisdom of the 115,000-plus CAPS members to filter out the noise and find companies offering strong momentum.

We'll use CAPS' handy stock screening tool to quickly zero in on companies with a stock price increase of at least 25% in the past four weeks, a market cap of greater than $100 million, and a beta of less than 3.

Here's a sample of stocks our CAPS screen returned:

Source: Motley Fool CAPS. Price return from Aug. 29 through Sep. 26.

Have drugs, need cash
The outlook got a lot brighter for drug developer Vertex Pharmaceuticals recently when the company announced some positive phase two results for its potential hepatitis C compound telaprevir. With its marketing partner Johnson & Johnson (NYSE:JNJ), Vertex found that patients can get the same benefits from taking the drug twice a day in higher doses as they do with lower doses three times daily. This is big news since patients are more consistent with less frequent dosages and forgetting to take the drug can lead to serious complications.                                               

The good news on the testing front came at an opportune time -- Vertex is once again holding its hat out to shareholders with yet another dilutive share offering. With telaprevir at least a year away from coming to market, Vertex will need the proceeds from the estimated $220 million offering to continue development.

The dilution to shares is a price many investors are willing to pay -- with hepatitis C affecting an estimated 170 million people worldwide, the massive market could make telaprevir a blockbuster drug, and Vertex a monster stock. More than 92% of the 571 CAPS members rating Vertex Pharmaceuticals see it going somewhat that way and have voted for the firm to outperform the market.

Checking your memory
Just as SanDisk's stock was bouncing along a bottom not seen in more than five years, Samsung floated a premium $26 per share offer in an effort to snap up the memory maker on the cheap. But SanDisk quickly rejected the offer and made it clear that any suitor would have to significantly raise the stakes to be taken seriously.

Whether Samsung plays along and increases its offer remains to be seen, but SanDisk shareholders could benefit if the company holds out and remains independent. The flash memory market could see strong demand in 2009 as more PCs enter the market with flash drives instead of disk drives. SanDisk also has the fundamental strength to remain patient -- the company's wealth of flash patents earn about half a billion dollars a year in licensing fees.

SanDisk and its shareholders have other reasons to be optimistic as well -- by aggressively pricing their Sansa music player models, SanDisk has achieved a 10% share of the digital music player market. While it's far from Apple's (NASDAQ:AAPL) 70%, it's much better than Microsoft's (NASDAQ:MSFT) 3%. It's recently released SlotMusic music media cards may be another dead-on-arrival format, but having the major record labels and retailer Wal-Mart Stores (NYSE:WMT) on board gives SanDisk an above-average chance.

Regardless of how SanDisk's forays into media players pans out, a solid group of CAPS members see days of higher value ahead for the company. More than 92% of the 1,666 members rating SanDisk expect it to outperform the market.

And you?
What's your story? Whether you buy the tale of a stock that's soaring or souring, your own research is more important than collective opinions. But these collective opinions can make your due diligence a whole lot easier.

Add your take on these or any of the 5,400 stocks that our 115,000-plus members have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.