5 Cold Stocks Heating Up

When a stock's share price is lower than the mercury in a thermometer in North Dakota in February, investors tend to 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 that a stock is melting investors' hearts until after it has made that move up.

Gauging 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 recently enjoyed a bump in investor confidence and see whether they're truly heating up.

Source: Motley Fool CAPS.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some CAPS members are taking notice of these stocks, maybe we should, too. 

The sun's always shining somewhere
The contract that SLM signed to become a servicer of student loans the government has already made or will make would help it deal with the lost revenue it might report if President Obama implements his plan to nationalize the student-loan business.

Sallie Mae, as the company is more commonly known, generated 30% of its interest income last year from private student loans, which help students fund the gap between what they borrow directly from the government and their own resources. Obama wants to get rid of private lenders like SLM and Nelnet (NYSE:NNI) so students could  get all of their loans from the government, arguing that Uncle Sam can save $87 billion by doing away with the private sector.

One need only look at the recent TARP program to see forecast results that were woefully short of reality. CAPS member hurdithere thinks the government will come up short again, and Sallie Mae will benefit from it:

Government will not be able to fully service student loans. SLM will change to fee for service and thrive. Uncertainty bringing stock to below market levels.

American Dairy is feeling the impact of China imposing stiff new labeling regulations for infant formula. The formula maker enjoyed remarkable success after it dodged the melamine scandal that affected manufacturers like Synutra International (NASDAQ:SYUT), which were found to have added the chemical to mixes because it boosted the protein content of their formulas. Six infants died from the contamination.

But American Dairy ultimately suffered from inflated growth expectations. When it reported that revenues would grow "only" 71% to 86% for 2009, the market slammed its shares because analysts had been looking for 100% or more in growth. CAPS member rogerisi says:

With this drastic drop of expectations, I'm in. This company has a bright future and this was the break I was looking for. Hang on for a few years and re-evaluate.

Similarly, kkconway thought there wouldn't be another so-attractive buy-in price.

I thought I had missed my chance on this one. Patience is a top virtue in China; this stock should reward me if I stick with it.

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. Because it's free to sign up, why not use this opportunity to do so?