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 is reason enough for a stock to climb 10%, 25%, even 50% -- sometimes in a single day. Sometimes, the companies are familiar, but many have names and stories entirely unknown to investors.

Often, it's news of a buyout offer that sends a stock rocketing. For instance, Oracle's (Nasdaq: ORCL  ) recent $6.7 billion offer for enterprise software firm BEA Systems (Nasdaq: BEAS  ) caused the latter's stock to jump 38% in one day. But beyond these unpredictable surges, there are stocks out there with an ongoing, 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. Motley Fool CAPS is a great tool not only for finding and screening stocks, but also for getting the background.

The story behind the story
Let's dig right in, using the collective wisdom of more than 65,000 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 a $100 million market capitalization, and those with a beta greater than three. Setting these limits will help keep us out of the wild, pump-and-dump land of penny stocks.

Here, then, is a sampling of stocks that our screen returned today.

Company

CAPS Rating
(Out of 5):

30-Day Price
Change:

China Telecom (NYSE:CHA)

*****

53.9%

ValueClick (NASDAQ:VCLK)

****

36.9%

KongZhong (NASDAQ:KONG)

***

70.9%

Netflix (NASDAQ:NFLX)

**

32.1%

China Finance Online (NASDAQ:JRJC)

*

150.6%

Data from MSN Money. Star ranking from CAPS. All data as of Oct. 12.

Now let's sift further through this list of market-thumping stocks to find out why they've performed so well over the past month.

The method behind the madness
CAPS contains a searchable record of investors' opinions and comments about a company, as well as an overall ranking from the investing community. Lest you think that this sounds like following a crowd of lemmings, note that the opinions of the best-performing investors are weighed more heavily than those from poorer-performing investors. Thus, a company's ranking is influenced more strongly by investors who have proven themselves as better than the average dart-throwing monkey.

Is Kong king?
Another Chinese stock burning up the tape this past month is wireless value-added service (WVAS) provider KongZhong. The company has struggled all year as disappointing earnings and the threat of business being lost to its own customers -- the carriers -- punished the stock before its dramatic rise of more than 70% this month.

Besides the general euphoria surrounding Chinese stocks in the past month, rumors that carriers China Mobile and China Unicom would throw KongZhong and other WVAS companies a bigger bone and pay them higher fees for services ignited the sector. A content deal with the NBA and a stock trading at prices close to the company's cash holdings also likely contributed to the optimism.

But CAPS investors are still on the fence with KongZhong. The sketchy financial performance of the company, as well as competitive and regulatory risks facing the firm, have a small, vocal contingent of CAPS investors speaking out against the company. Of the 381 All-Star CAPS investors rating the company, 22 have registered bearish votes on the firm, meaning they believe it will underperform the market going forward.

Getting your Netflix fix
The sun has been peeking through the dark clouds over Motley Fool Stock Advisor recommendation Netflix as well. Just as $6 popcorn irks moviegoers, Netflix rival Blockbuster is bumping up prices on its competing Total Access service. Investors took the move as a sign of Blockbuster's weakness, and when considered in light of recent struggles among other movie download alternatives, that adds up to more positive sentiment around Netflix.

Wall Street analysts and CAPS investors are still sharply divided on the company, however, with nearly 1,000 of the 4,560 investors who rated the company giving it the thumbs-down.

What's your story?
Ultimately, the only story that counts is your own. Whether you buy the tale of a soaring or souring stock, your own research is more important than collective opinions. But thankfully, these collective opinions make individual due diligence much easier.

So step right up and chime in with your own take on these or any of the more than 5,000 stocks covered in Motley Fool CAPS. It's totally free to be a part of it, and the payback is more than worth it.


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