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 in real estate investment trust ProLogis gained 31.5% in a day after the company announced moves to raise billions in cash and received an upgrade from Wachovia Capital Markets.
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 125,000 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 25% in the past four weeks, a market cap of greater than $100 million, and a beta of less than 3.
Below is a sample of stocks our screen returned. If you want to run this screen yourself, simply click here; just keep in mind that results will be updated with the market.
|
Company
|
CAPS Rating
(Out of 5)
|
4-Week
Price Change
|
|
Diana Shipping (NYSE: DSX )
|
****
|
37.8%
|
|
Tesoro (NYSE: TSO )
|
***
|
31.1%
|
|
Best Buy (NYSE: BBY )
|
***
|
28.9%
|
Source: Motley Fool CAPS. Price change from Nov. 28 through Dec. 26.
Squeeze play
Oil refiners like Tesoro, Valero (NYSE: VLO ) , and Western Refining (NYSE: WNR ) have been caught in a squeeze lately. The companies were hurt by rising crude prices and sinking margins earlier this year, so their stock valuations dropped precipitously. But with the price of crude having fallen significantly in the past few months, margins have eased up. Unfortunately, gas prices fell faster than expected and have hit the refiners on the other end.
Tesoro's CEO recently said that to deal with a tough margin environment that he expects to last a couple of years, the company will scale back spending. For 2009 alone, it cut its capital spending to $600 million to $700 million from $1.1 billion.
The company also expects to bolster its margins with some strategic improvements, allowing it to buy cheaper crude and gain more value from its products. Along these lines, Tesoro recently struck a deal to use a Panamanian company's pipeline to economically transport crude oil to its Pacific Rim refineries. Even with the volatile fuel markets, many CAPS members see stability eventually returning and, hence, see opportunity in the lower valuations of refiners. In CAPS, 93% of the 966 members rating Tesoro expect it to outperform the market.
Still a good buy?
Despite a souring economy in the third quarter, Best Buy's earnings came in at $0.35 per share, excluding special items, and even though this was down 34% from a year ago, it far exceeded analyst expectations. The company also managed to increase revenue 15.8% to $11.5 billion and increased its market share by 1.7%.
But these gains came with a lot of pain and significant shifts in the company to deal with a truly ugly retail environment. Best Buy cut spending and cut back on inventory for the quarter. It plans to cut capital spending, open fewer stores next year, and offer voluntary severance packages to all its corporate employees as it strives for leaner operations during the slowdown in consumer spending.
Even with its sector-related problems, many CAPS members see long-term potential in Best Buy, believing it will benefit from the potential collapse of Circuit City, which should also help it compete with big-box retailers Wal-Mart (NYSE: WMT ) and Costco (Nasdaq: COST ) . More than 86% of the 2,911 CAPS members rating Best Buy expect it to beat the S&P.
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 nearly 5,400 stocks that our 125,000-plus members 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.
On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.
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