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, 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 145,000-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. 

Caution: Contents may be hot
First, potential competitive pressures sent solid-state drive maker STEC sharply lower. Analysts began warning that rivals like Intel (NASDAQ:INTC) might want to horn in on what has been a lucrative niche for STEC, driving down its sales. But the memory specialist insists that there is no competition right now, and that no one will enter the market until sometime next year at the earliest.

After extinguishing that brushfire, STEC stock took another hit when news broke that storage shop EMC (NYSE:EMC) might have bought too many of its top-notch ZeusIOPS drives, and may have to carry them into 2010. That's a more credible threat to crumbling sales potential, since EMC makes up 90% of STEC's Zeus sales. With the company's efforts to reach out to IBM (NYSE:IBM) yielding lackluster results, the probability of excessively weak revenue growth punished STEC's stock. It's trading two-thirds lower than it did just three months ago, a movement that predictably caught the attention of parasitic trial lawyers.

CAPS member ColoCdn is willing to give STEC the benefit of the doubt, believing that the same forces that caused shares to crater will eventually resurrect it:

Not sure the bludgeoning is complete just yet, but I'll go out on a (cracked) limb to give this wounded puppy the thumbs up-if only because history will probably repeat itself. The same "investors" who drove this stock through the roof the first time are now waiting patiently in the morgue...

It's not guaranteed that EMC still won't be able to use up its inventory in short order. To speed the adoption of its solid-state technology, STEC is helping to integrate the drives into EMC's systems through a sales and marketing program. All the same, STEC's management feels it's better to be prudent and issue cautionary guidance. The lawyers, of course, are eying sales made by insiders in August when shares were flying high, thus missing out on what turned into some ugly price action.

Can the solid-state sultan drive forward from here? Add your opinion to STEC's CAPS page. If you think the insider transactions smell fishy -- and you're not just sore that your stock is now trading lower -- tell us in the comments section below.

Checking the mercury
Are these stocks invitingly warm or bitterly frosty? 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 hot little numbers, and which offer cold comfort. It's free to sign up.