More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news or other short-term forces can send individual stocks up by 10%, 25%, even 50%. For example, when ON Semiconductor (NASDAQ:ONNN) offered $915 million in stock for AMIS Holdings, the latter's stock jumped more than 30% in a single day on the news.

But beyond one-time blips like this lie stocks with compelling reasons for their recent momentum -- provided you can find them. That's where Motley Fool CAPS comes in.

The story behind the story
CAPS is no crowd of lemmings; its best-performing investors' opinions do more to shape each company's rating than the picks of their poorer-performing peers. Let's use the collective wisdom of more than 78,000 CAPS investors to filter out the noise and find companies showing strong momentum. We'll screen for companies whose stock price is up least 30% in the past month, with a market cap greater than $100 million and a beta of less than 3. That'll keep us clear of the wild, pump-and-dump land of penny stocks.

Here's a sampling of stocks our screen returned.

Return data is calculated as the difference between the closing price on Nov. 23 and the closing price on Dec. 24, as per MSN Money's screen. Star ranking from CAPS. Data as of Dec. 24.

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.

A hero's welcome
You'd think stock in video game maker Activision has been gaming the system lately, with a greater than 50% rise in the past month. But the company has enjoyed not only a string of successes with its Guitar Hero and Call of Duty game series, but also optimism surrounding a megamerger with Vivendi Games. The merger calls for Vivendi to combine its game unit, including the online hit World of Warcraft, with Activision to create a company called Activision Blizzard.

The combination of each company's assets would give Activision Blizzard some muscle to go up against leader Electronic Arts (NASDAQ:ERTS). The combination has also turned up the heat on smaller players in the industry and led to speculation about other players combining PC and console gaming with online game properties. The move makes sense because it diversifies revenue that tends to bunch up on release dates of new gaming titles and adds recurring revenue streams from monthly subscriptions.

Most CAPS investors are bullish on the merger with Vivendi, and they have faith in the games Activision brings to the mix. In fact, Activision just recently raised guidance for the coming quarter and the fiscal year ending in March. Management sees a better than expected reception for its games over the holidays and also reports that the company is gaining market share in key console and handheld-gaming segments. All the high scores coming from the company has boosted the stock and gives more than 97% of CAPS investors rating it confidence that Activision will beat the S&P going forward.

Of corncob pipes ...
Although it falls on the other end of the star spectrum in CAPS, one-star renewable fuel producer Pacific Ethanol has nonetheless proven to be one hot stock by more than doubling in the past month. But many investors are wary of the ethanol producer because its shares have slid all year -- they're down 43%, even after the double -- as it continues its money-losing streak.

But a merger announcement between competitors VeraSun Energy and U.S. BioEnergy now has investors, hoping for a buyout, interested in shares of Pacific Ethanol. CAPS All-Stars aren't swayed from negativity, however, as the oversupply of ethanol and the fundamentals underlying Pacific Ethanol's business leads a majority of 133 (of 201) rating the company to indicate it will underperform the general market in the future.

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

So step right up and add your own take on these or any of the more than 5,300 stocks that investors have covered in Motley Fool CAPS. It's totally free to be a part of the service, and the payback is more than worth it.