More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, headlines and ticker feeds tout 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 sends a stock soaring. Blackstone's (NYSE:BX) $6.4 billion offer for Alliance Data Systems (NYSE:ADS) caused the latter stock to jump almost 25% in a single day. 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 stories behind them. 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 31,000 CAPS investors 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
CAPS contains a searchable record of investors' opinions and comments about a company's fundamentals, value, and prospects at any given time. Users can see what other investors were saying about a company before a huge surge in price, and whether those investors 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 the investing community's favor.

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

At the top of our list, we find Texas-based specialty resin manufacturer ICO, a global raw material supplier to companies selling everything from household items to fertilizer tanks. Beyond the boring product tale, however, ICO has been telling a spectacular earnings story -- a great fiscal second quarter that saw net income jump 135% to $7 million. ICO's stock has been on a steady rise following its latest quarter, in which CEO A. John Knapp Jr. stated that the strong operational results would continue into the current period. CAPS investors like the story as well, with more than 98% of investors who rated the company believing that ICO will beat the market going forward.

Our top gainer on the list, life settlement services firm Life Partner Holdings, has been rocking the market, having more than doubled over the last 30 days. Fuel was first added to the fire when Life Partners announced increased financial guidance earlier this month. The reason? The company has seen more seniors interested in cashing out of life insurance policies from the likes of MetLife (NYSE:MET) and AIG (NYSE:AIG) lately.

The gains in the stock continued when the company reported quarterly revenue that surged 184% to $17.6 million, and net income that hit $4.7 million. But with the dramatic rise and a P/E north of 50, not all investors are on board this gravy train. More than 10% of CAPS investors are betting this stock will underperform the S&P from now on.

Rounding out the bottom of our momentum list is independent natural gas explorer American Oil & Gas. The volatile small-cap stock has lately been rebounding after a protracted fall from a peak of roughly $8 per share in December 2006. Updated guidance on the progress of drilling operations at certain wells has warmed investors to the company this past month, but the CAPS community is not yet sold on the stock -- five out of 10 CAPS All-Stars think the company will lag the broader market in the future.

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 take on these or any of the more than 4,700 stocks covered in Motley Fool CAPS. It's totally free to be a part of this story, and the payback is more than worth it.

Digene is one of many stocks tagged in CAPS for close scrutiny in the Rule Breaker Universe. To learn more, take a free 30-day trial of the Motley Fool Rule Breakers 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.