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 Philips offered $5.1 billion for Respironics (Nasdaq: RESP  ) , the latter's stock jumped 23% 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 79,000 CAPS investors to filter out the noise and find companies showing strong momentum.

We'll screen for companies whose stock price is up least 25% 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.

Company

CAPS Rating
(Out of 5)

1-Month
Price
Change

InterDigital (NASDAQ:IDCC)

*****

29.6%

Hess (NYSE:HES)

****

41.8%

Leap Wireless (NASDAQ:LEAP)

**

34.4%

Capstone Turbine (NASDAQ:CPST)

**

33.6%

Fremont General (NYSE:FMT)

*

39.4%

Return data is calculated as the difference between the closing price on Nov. 30 and the closing price on Dec. 31, as per MSN Money's screen. Star ranking from CAPS. Data as of Jan. 1.

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.

Look before you leap
Besting even the most over-the-top daytime soap operas, there's been quite a bit of corporate drama in the life of Leap Wireless lately. Investors have been on a wild ride as the regional wireless service provider saw its stock rise 60% this year before plummeting by nearly 70%.

Leap's shares peaked at around $99 per share only weeks before announcing disappointing growth in its third quarter, which knocked off more than one-fourth of its market value. Then in early September, suitor MetroPCS (NYSE: PCS  ) made a $4.7 billion stock offer to merge with Leap. But the board of Leap soon rejected the offer, stating that it dramatically undervalued the company's assets and growth prospects.

After the two companies bickered for several weeks over who was better, MetroPCS withdrew its offer. Leap then tested the resolve of its shareholders by announcing the restatement of results going back three years, dropping the stock to a new low for the year, around $34 per share.

Leap's recent bounceback and positive momentum comes on the heels of some significant insider and institutional buying. Chairman Mark Rachesky has boosted his stake significantly to nearly 23% of the company, while Harbinger Capital increased its control to 13.5%. Regardless of the insider activity, a significant base of CAPS investors remain bearish on Leap's prospects, with 30 of the 114 investors rating the company believing it will underperform the S&P in the future.

Legalized momentum
A wireless company ranking much higher with the CAPS crowd is Motley Fool Stock Advisor recommendation InterDigital. But the favor is not driven by dramatic gains in the stock. The licensor of intellectual property used in wireless handsets and networks has seen its shares fall by more than 30% in 2007. Things were looking even bleaker little more than a month ago though, when InterDigital gave lower than expected guidance for its fourth quarter.

But momentum in InterDigital's stock has returned, buoyed by a couple of legal victories that make lucrative royalties for its patents more likely. Because much of its success hinges on court decisions and large license fee settlements, legal decisions that signal long-term opportunities often outweigh bad financial news in the near term. CAPS investors largely agree as well, with more than 97% of investors rating the company willing to overlook the near-term pain and vote for the company to outperform the general market.

What's your story? Ultimately, the only story that counts is yours. 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 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.


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