Investor sentiment can be a powerful force in moving stocks. Think of it as a pendulum swinging in a company's favor. When investors begin to think highly of your company, it might be a sign that the stock will also start heading in the right direction.

Yet knowing when investors are beginning to warm up to a stock isn't always easy. Often, you can tell only after the stock has moved up -- but by then, it may be too late.

An astrolabe for investors
Investors at Motley Fool CAPS, however, have a way to monitor the progress of investor sentiment. Like every player on CAPS, each stock is given a rating from one to five stars. While the full "secret sauce" of how the ratings are calculated is proprietary, there are three factors that influence a stock's star rating:

  • Whether a stock is rated "outperform" or "underperform."
  • The length of time it is expected to take to achieve this performance (a few months or a few years).
  • The ratings of the investors who make the picks.

Like astronomers scanning the skies, investors can track the movement of the stars. A stock's CAPS rating trend shows how investors feel about the stock over time, whether its star rating is on the upswing or trending down.

Investors can then use this information to help decide whether it may be a good time to invest in the stock. Below is a table listing some of the stocks that have recently seen their ratings rise from one star, the lowest possible rating, to two stars.

Company

CAPS Rating

Recent Price

1-Year Return

Enterra Energy Trust (NYSE:ENT)

**

$2.50

(63.8%)

Nautilus (NYSE:NLS)

**

$6.45

(52.2%)

Cell Therapeutics (NASDAQ:CTIC)

**

$3.65

(43.7%)

Alcatel-Lucent (NYSE:ALU)

**

$9.25

(26.9%)

iBasis (NASDAQ:IBAS)

**

$7.75

(4.9%)

Data from Yahoo! as of Oct. 25, 2007.

Obviously, this is not a list of stocks to buy, but rather a starting point for further research. Consider this example from one of the companies that appeared last week on our list. Research In Motion (NASDAQ:RIMM) began to move up in price in June, rising from about $55 a share to the mid-$70s in July. Its rating, on the other hand, didn't begin to advance till July. It then gave back some of its share appreciation the following month, just as CAPS investors were getting interested. In August, the stock surged again, rising to a high of $88 a share, approximately a 33% increase in just one month. So it can pay to keep your eyes on the stars.

Building a case for change
At one time it was THE name in gym equipment, but Nautilus has long since fallen on hard times. A few months ago CAPS All-Star albanyfx noted that an activist investor had bought more shares in Nautilus, giving it a voice for change. Seems the board took notice.

SNYDER CAPITAL MANAGEMENT purchased another 12% of NLS stocks to [restructure] the [current Nautilus] management problem. Hope the board of director[s] will reelect new management group to bring [Nautilus] to a more profitable [level] and expand globally with the company.

The fitness equipment company has been working out, getting it flabby self buff again. It has renegotiated debt agreements, slimmed down its workforce, and installed a new CEO last August. That kind of bodybuilding takes some time to become evident; it surely wasn't there when Nautilus announced third-quarter results the other day. Profits were off and the fourth quarter outlook was weak. Still, there is change afoot and today's skinny kid getting sand kicked in his face may very well become tomorrow's Charles Atlas.

Shine your starlight
We know where the bull and bear positions are, but we haven't yet heard from you. At the 70,000-strong Motley Fool CAPS community, every investor's opinion counts. Weighing in with yours could be the difference between these stocks becoming shooting stars or supernovas. Considering it's free to sign up and free to post your thoughts, use this opportunity to take your star turn.