More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, we see headlines and ticker feeds touting soaring stocks. Some juicy rumor or biotech wonder drug seems to be reason enough for a stock to climb 10%, 25%, even 50% -- sometimes in a single day. Sometimes the companies are familiar, but many are names and stories entirely unknown to investors.

Often, news of a recent buyout offer that investors didn't anticipate causes a stock to rise dramatically. TPG Capital and Goldman Sachs' (NYSE:GS) $27.5 billion offer for Motley Fool Income Investor pick Alltel (NYSE:AT) caused the stock to bump up almost 7% even after widely disseminated rumors of a buyout contributed to a 16% rise in the six months prior. But beyond these somewhat unpredictable surges, there are stocks out there with a fundamentally compelling story behind their recent momentum. The difficulty comes in sifting through the daily trading and news-driven gyrations to find them.

Luckily, there's help right at your fingertips. The Motley Fool CAPS system is a great tool not only for finding and screening stocks, but also for getting a quick read on the fundamental story behind a company. In addition, investors can quickly see just who -- from the big names on Wall Street to the regular Joes on Main Street -- is bullish or bearish on the company, and why.

The story behind the story
Let's dig right in, using the collective wisdom of more than 30,000 CAPS raters to look past the splashy news and find companies showing strong recent momentum.

We'll screen for stocks showing at least 30% price appreciation in the past month. Then we'll weed out stocks with less than $100 million market capitalization, and those with a beta greater than 3. This will help keep us out of the wild, pump-and-dump land of penny stocks. Here's a broad sampling of stocks that our screen returned today:

Now let's sift further through this list of stocks that have thumped the market over the past month, and find out why they've performed so well.

The method behind the madness
One advantage of CAPS is that it contains a searchable record of players' opinions and comments about a company's fundamentals, value, and prospects at any given time. Users can see what others were saying about a company before a huge surge in price, and whether as many still favor it after the run-up. A company's star ranking also has a history, showing whether a company has been rising or falling in favor with the investing community.

And lest you think keying off CAPS ranks is equivalent to following a crowd of lemmings, note that the CAPS system weights the opinions of the best-performing raters more heavily than those who haven't done so well. Thus, a company's ranking is influenced more strongly by players who have already proven better than the average dart-throwing monkey.

In looking at one of the biggest gainers on our list, Harvest Natural Resources, we find an oil and gas explorer that is based in Texas but operates its primary properties a few thousand miles away in Venezuela. Finding opportunities in politically challenging regions such as Venezuela is the driving strategy at Harvest and obviously makes the stock a risky play. But this strategy recently paid off -- the company won approval from Venezuela's National Assembly to convert its operations in Venezuela into a new, "mixed" company that will have partial government ownership. While the deal isn't sealed until Hugo Chavez blesses the contract, CAPS players are largely confident that the value of Harvest's properties will be realized -- the bull-to-bear ratio on the company is greater than 10-to-1.

Nitrogen fertilizer producer Terra Nitrogen makes the momentum list thanks to a steady rise of its stock from about $80 to more than $115 recently. The recent rise caps a tremendous year for the company as well, which is up almost 400% in the past 12 months. Increased institutional ownership and solid earnings growth has been propelling the stock higher, even after heady gains over the past few years. While many CAPS users still favor growth prospects in nitrogen and like the generous dividend the company pays, some are concerned the run-up in shares has been overdone. With seven of the 111 all-star CAPS players bearish on the company, Terra Nitrogen only has a three-star rating now.

A one-star bottom dweller on our list, drug developer Bioenvision, has a different story. News that the company was going to be acquired by partner Genzyme (NASDAQ:GENZ) for $345 million in cash bumped the stock up, but only slightly as shares had already soared 70% in just a few weeks before the announcement. Fellow Fool Brian Lawler wondered if something fishy wasn't afoot with the unexplained rise. Nevertheless, CAPS raters had awarded Bioenvision at best a two-star rating prior to the announcement, given the lack of earnings and scale at the small company.

What's your story?
Ultimately, the only story that counts is your own. Whether or not you buy the story of a soaring or souring stock, your own research is more important than collective opinions. But thankfully, these collective opinions make an individual's job of due diligence much easier.

So step right up and chime in with your own opinion on these or any of the more than 4,600 stocks covered in Motley Fool CAPS. It's totally free to be a part of this story, but the payback is more than worth it.

Alltel is one of many dividend-paying stocks selected by the Motley Fool Income Investor service. To learn more about companies that will pay you to retire, check out a free 30-day trial of the service.

Fool contributor Dave Mock has his own story, but won't bore you with the details. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy has the momentum of a freight train, but can stop on a dime.