More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news and other short-term forces can send individual stocks up by 10%, 25%, even 50%.

For example, shares of Rohm & Haas (NYSE: ROH  ) shot ahead 64% in a single day, after Dow Chemical (NYSE: DOW  ) announced it would pay a huge premium to acquire the company.

But beyond less predictable events like that one are stocks with fundamentally compelling reasons for recent momentum. The trick is to find those stocks. That's where Motley Fool CAPS comes in.

The story behind the story
CAPS is no crowd of lemmings. Its best-performing members' 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 110,000 CAPS members to filter out the noise and find companies offering strong momentum.

We'll use CAPS' handy stock screening tool to quickly zero in on companies with a stock price increase of at least 20% in the past four weeks, a market cap of greater than $100 million, and a beta of less than 3.

Here's a sample of stocks our CAPS screen returned:

Company

CAPS Rating
(Out of 5)

Four-Week
Price Change

Kinross Gold (NYSE: KGC  )

*****

25.8%

Barrick Gold (NYSE: ABX  )

*****

24.6%

General Steel (NYSE: GSI  )

****

32.2%

Myriad Genetics (Nasdaq: MYGN  )

***

26.7%

Return data is calculated as the difference between the closing price on June 17 and the closing price on July 15, per Yahoo! Finance. Star rankings from CAPS.

Kinross Gold
To capitalize on rising gold prices, Kinross is playing the consolidation game. It's been busy snapping up or investing in junior miners. In 2006, Kinross paid a 22% premium for Bema Gold, and earlier this month, the company took an equity position in Chapleau Resources through a private offering. The potential in young exploration companies and the larger trends in commodity prices have nearly 96% of the 1,184 CAPS members who've rated Kinross expecting the miner to outperform the market.

Barrick Gold
While Barrick Gold is riding the same trends as Kinross, the miner is digging in other places for growth as well. To hedge rising raw-materials costs, which sap profits from gold production, Barrick offered $351 million to purchase Canadian oil and natural gas producer Cadence Energy. The move will hedge about a quarter of its direct oil consumption and a significant part of its natural gas consumption. With Barrick Gold's CFO Jamie Sokalsky estimating the breakeven price to cover the cost of gold projects at about $700-$800 per ounce, many investors believe the price of gold will continue to march higher, driven by pricing of other resources. A high percentage of CAPS members seem to agree, with more than 95% of those rating Barrick voting for the company to outperform the market.

General Steel
Riding a more regional trend is China's General Steel, a diversified steel producer. It's fortified by a national economy that grew an amazing 11.9% last year -- China's fifth straight year of double-digit growth. At the end of June, General Steel acquired a 99% interest in privately owned Maoming Hengda Steel Group, which is currently operating at only a 10% capacity. With plans to boost production at Hengda from 180,000 tons a year to 1 million tons by the fourth quarter, more than a few investors argue that General Steel should be the next stock you buy. CAPS members have quickly warmed up to General Steel, too. Nearly 94% of the 330 members who've rated the company believe it will beat the S&P going forward.

Myriad Genetics
Diagnostic testing is one of the fastest growing areas in biotech, ensuring that Myriad and other test makers like Genzyme (Nasdaq: GENZ  ) and Third Wave see significant growth. The profitable diagnostics business at Myriad gives it an edge against other players, since that cash flow supports its drug research and development ventures. The extra cash also acts as a nice cushion when drug tests go bad, as when Myriad's Alzheimer's drug Flurizan failed phase 3 testing recently. CAPS members are more divided on Myriad, though, with only 88% of the 221 members rating the company viewing it as an outperformer.

And you?
What's your story? Whether you buy the tale of a stock that's soaring or souring, your own research is more important than collective opinions. But these collective opinions can make your due diligence a whole lot easier.

Add your take on these or any of the 5,500 stocks that our 110,000-plus investors have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.

Myriad Genetics is one of dozens of high-growth stocks selected by the Motley Fool Rule Breakers service to beat the market over the long haul. To see all the stocks David Gardner and the analyst team have recommended, take a free 30-day trial.

Fool contributor Dave Mock has his own story, but there's no "happily ever after" at the end of it. He owns no shares of companies mentioned here, and he's the author of The Qualcomm Equation. Dow Chemical is a Motley Fool Income Investor pick. The Fool's disclosure policy has the momentum of a freight train, but it can stop on a dime.


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