When a stock's share price is lower than a North Dakota thermometer in February, investors tend it give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell when investors are warming to a stock until after it's made that upward swing.
Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 130,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence, and see whether they're truly heating up -- or headed back to the deep freeze.
|
Company
|
CAPS Rating (out of 5 max)
|
Recent Price
|
Next Year EPS Growth
Est.
|
|
First American (NYSE: FAF )
|
***
|
$25.07
|
5%
|
|
iStar Financial (NYSE: SFI )
|
***
|
$3.37
|
96%
|
|
Myriad Genetics (Nasdaq: MYGN )
|
***
|
$33.70
|
85%
|
|
Starent Networks (Nasdaq: STAR )
|
***
|
$20.05
|
18%
|
|
Zoran (Nasdaq: ZRAN )
|
***
|
$9.73
|
57%
|
Source: Motley Fool CAPS.
Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too.
Caution: Contents may be hot
There hasn't been much to like in the commercial real estate market lately, where mighty implosions like that of General Growth Properties underscored the reverberations of the recession. iStar Financial is primarily a lender, but it also buys properties and leases them back to tenants. The company surprised everyone recently with a first-quarter earnings report that showed losses far less than what analysts had been expecting. Moreover it ended the quarter with $1 billion in cash and available credit.
CAPS member JAO53 thinks the situation has stabilized:
The company has secured its lines of credit for the next 2 years and seems to have a handle on its loan provisions and losses. Should this be true, the company will resume paying dividends, and based on being a REIT, will be forced to pay large dividends in relation to the current price (about 100% annually) when it regains its strength. When the dividends resume, the price will soar. This may be a year or two, but when it happens, it will be spectacular. I want to be on board when this happens.
Chipmaker Zoran is another specialty company confounding analysts with higher-than-expected earnings. It reported that revenue rose 39% sequentially, as components used in digital televisions jumped on an increase in demand for low-end and mid-range LCD TVs. Perhaps that shouldn't have been much of a surprise, since glass panel maker Corning (NYSE: GLW ) also beat estimates on increased demand for flatscreen TVs.
However, CAPS member CharlieBombay wasn't so sure about the path to profitability for Zoran back in March:
Strong balance sheet with cash. But!!! Serious revenue problems facing them during this downturn. Already experiencing losses and negative cash flow. Enterprise value/EBITDA at 25. Fine during a boom, not so much during a bust cycle.
Consumer electronics was one of the few areas that even Dolby Labs (NYSE: DLB ) saw decline in the last , though it was able to compensate thanks to the broad diversity of markets it serves.
Here comes the sun
Are these stocks getting toasty, or still a frostbite risk? It pays to start your research on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think are heating up. Since it's free to sign up and post your thoughts, why not use this opportunity to turn up the heat in your own portfolio?
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