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, its 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.
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Company
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CAPS Rating (out of 5)
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Recent Price
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EPS Estimates (Next Year/Year After)
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Emulex (NYSE: ELX )
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***
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$9.12
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$0.31/$0.11
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Family Dollar (NYSE: FDO )
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***
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$31.03
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$2.06/$2.28
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T. Rowe Price Group (Nasdaq: TROW )
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***
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$46.26
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$1.33/$1.81
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Vical (NYSE: VICL )
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***
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$2.87
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($0.64)/($0.63)
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Virgin Mobile (NYSE: VM )
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***
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$3.95
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$0.37/$0.53
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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 pay attention, too.
The sun's always shining somewhere
When it seemed that the world was about to be consumed by swine flu earlier this year, like some storyline from a Michael Crichton novel, shares of vaccine makers such as Novavax (Nasdaq: NVAX ) and Vical surged. But as fears of pandemic gave way to more rational thought, investor ardor for the biotechs waned.
Last month's news that Vical's vaccine protected 75% of the mice and rabbits injected with it after just one dose has renewed interest in the vaccine maker. The news might just provide the validation the biotech needed for its ability to craft a possible solution so quickly after the virus revealed itself.
Highly rated CAPS All-Star zzlangerhans thinks more time is necessary to properly evaluate Vical before jumping on the bandwagon:
While Vical may be still be undervalued for the long term, the short term share price is too wrapped up in swine flu nonsense which I've been steadily betting against. Prior to swine flu, Vical was not very active in the pandemic influenza department and was focusing mainly on a CMV vaccine and the weird tumor vaccine Allovectin-7, neither of which was likely to rock the world anytime soon. Of course swine flu has made all of these companies influenza powerhouses long enough to get their stocks doubled and hopefully permit juicy dilutive financings. We shall see how all that works out for the shareholders.
Storage-technology specialist Emulex should have inoculated its shares after Broadcom (Nasdaq: BRCM ) launched a hostile $764 million bid for the company -- a better than 60% premium to where the stock had been trading -- back in April. Emulex felt Broadcom was lowballing its offer, even after upping the ante to $912 million. With fourth-quarter results expected to come out at the high end of guidance, Broadcom is giving up the pursuit and has withdrawn the offer.
It's Emulex's strong business position that attracted investors in the first place. CAPS All-Star SreeRama, for one, thinks the storage company will fly solo just fine:
Fundamentals are strong. Excellent cash position to weather any storm (if any is left in the current crisis). Has technology and business relationships (design contracts/wins) that is sought by other "wanna be" companies. Has technology to do well as an independent company even if no one acquires them.
A phone-company disconnect
Cable TV in my area runs commercials touting its service over "phone company TV," and it notes that there are no hidden fees like you'll find on your phone bill. High costs are just the thing that's driving cell-phone users to try out prepaid calling plans. Virgin Mobile lost more than 133,000 customers from its prepaid service in the first quarter, the only one of the six biggest providers to record such losses, but profits surged as its subscribers signed on to higher-margin plans. CAPS' michaeltbryant thinks Virgin looks attractive across several metrics:
High insider ownership. Decent PE ratio. Low price-to-sales ratio. Low PEG. Go Richard Branson!
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?
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