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
If Ariad Pharmaceuticals can continue the path it's blazing in generating positive results for its cancer therapies in clinical trials, the drug development company may richly reward investors for their patience.  

Several Phase 1 trials have shown significant promising results such that Ariad is looking to expand enrollment for a blood-cancer treatment now under development. It also just announced that it has completed enrollment for what it says is the largest known drug trial targeting soft-tissue and bone sarcomas, a particularly aggressive form of cancer that leaves patients with few treatment options. If successful, the company will eventually look to market the therapy with Merck (NYSE:MRK).

As there has been no new approved therapy in the U.S. for patients with soft-tissue or bone sarcomas in more than 20 years -- and the American Cancer Society estimates that approximately 10,600 new cases of soft-tissue sarcomas will be diagnosed in the United States, as well as 2,600 new cases of bone sarcomas -- this represents a large market opportunity for the biotech.

Highly rated CAPS All-Star member TMFBiologyFool believes that for a company with several drugs in late-stage development, its tiny market valuation seems skewed:

A sub-$250 million market cap for a couple of phase 3 drugs seems like a good deal.

Dialing up reality
If it's December, then it must be time to talk about merging Leap Wireless and its rival MetroPCS (NYSE:PCS). It was just two years ago that merger talks between the two prepaid wireless providers fell apart after they were unable to come to terms. This time around, though, perhaps there's more than meets the eye.

Competition in the prepaid market has intensified. Sprint-Nextel (NYSE:S) bought Virgin Mobile to complement its Boost Mobile prepaid service, and Verizon is selling wholesale minutes to Tracfone Wireless, which also offers prepaid wireless calling services.

According to the market researchers at New Millennium Research Council, as many as 26% of post-paid wireless users are willing to switch to a prepaid plan to save money. Problem is, they haven't been switching to Leap or MetroPCS as quickly as survey results indicate they would.

Losses widened at Leap last quarter to $65.4 million as average revenue per user (ARPU) dropped almost 8%. While MetroPCS saw profits and ARPU expand last quarter, it also witnessed a jump in the churn rate of its customers.

Investors don't appear too worried, though. Over on CAPS, investors have steadily built up their appreciation for Leap, and more than 81% now believe it will outperform the market. Highly rated CAPS All-Star TMFSmashy finds a discounted cash flow analysis to be particularly convincing regarding the company's future growth potential, while baselineace thinks the holiday season will reveal a better scenario.

What about you? If you think the prepaid wireless provider can leap over the competition, head over to the Leap Wireless CAPS page and drop a dime with your predictions.

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.