5 Cold Stocks Heating Up

When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, that stock's price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.

Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 135,000-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.

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. After all, Warren Buffett is strapping on his leather to ride with Harley, and although it only recently had its IPO, DigitalGlobe has closed a deal (pending U.S. government approval) to sell and market its high-resolution digital images of the earth to customers in Europe and the Middle East.

The sun's always shining somewhere
Yet will it be possible for Spectrum Pharmaceuticals to succeed where others have tried and failed? If so, the outcome could be quite lucrative. Spectrum's non-Hodgkin's lymphoma treatment Zevalin is before the FDA, as the company awaits a decision on whether to expand its non-Hodgkin's lymphoma schedule to include first-line consolidation therapy. We should get an answer this week.

The drug originally got FDA approval for treating non-Hodgkin's lymphoma back in 2002, when it was owned by the precursor to Biogen Idec (NASDAQ:BIIB), but it was as a last line of defense when all other treatments had failed. Cell Therapeutics (NASDAQ:CTIC) bought the drug after that, but it handed over all of its rights to Spectrum earlier this year as it sought to raise cash. An arbitrator recently ruled that the biotech had to pay Spectrum more than $4 million in expenses for the drug.

So Spectrum now possesses a cancer therapy that's already been graced with FDA approval one time and is poised to receive expanded permission by July 2. A consolidated regimen will allow Zevalin to be prescribed right after a patient responds in a positive manner after receiving a first-line treatment such as chemotherapy. It already has European Union approval for such treatment, and this could become a large commercial success for Spectrum should it receive a U.S. endorsement. Coupling this drug with a pipeline that includes therapies for colorectal and bladder cancer, Spectrum Pharmaceuticals could have the right prescription for growth.

Some of the heavyweight investors over at CAPS have weighed in against Spectrum, but one highly performing member, TSIF, suggests that while the bears' arguments make sense, Spectrum holds enough promise in its combination drugs to make it a potential winner:

To pitch against BOTH zzlangerhans and aracer who downthumbed Spectrum Pharmaceuticals is no doubt suicide on my part. ZZ theorizes that even if Zevelin is approved Spectrum could drop in price due to the usual speculation, sell on the news that follows the bios. While I would tend to agree the rash of bio followers since Dendreon broke lose has grown. The recession has bred a large group of day traders who hope around looking for a big score. Bios, although rare, can result in a big score and the temptation pulls in gamblers faster than Los Vegas. Phase 3 data for satraplatin when combined with other drugs seem to improve response. Combination drugs are very subjective and approval is further off. Still with Spectrum's pipeline, speculators and gamblers, I'm betting that I can score on this pick if I'm properly attuned to the gamblers vibes!

The 156 companies that make up the Pharmaceuticals sector on CAPS have enjoyed some success over the past month. They've risen by more than 16% compared with the S&P 500's flat effort -- enough to put them within the top 50 sectors in the CAPS universe in terms of performance. Yet Spectrum has done even better, having risen by nearly 40% over the past 30 days.

Shine your starlight
So are these stocks driving ahead or ready to crash? It pays to start your research on these stocks 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 shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?