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 150,000-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
The stock of Advanced Battery Technologies was juiced when it was rumored last month that it had snagged a contract to supply the Apple (NASDAQ:AAPL) iPad with batteries, but with nothing more concrete to go on, prices have fallen by 20% in intervening weeks.

Investors in Oncolytics Biotech have similarly been waiting for a spate of good news to propel their company forward. It is developing treatments for head and neck cancers using its proprietary formulation of the human reovirus, Reolysin, for which it's preparing Phase 3 trials.

STAAR Surgical got that kind of bounce when Japan approved its Visian Implantable Collamer Lens. Like LASIK surgery, STAAR's ICL treatment corrects myopia, but unlike the more well-known treatment, it is reversible. The stock soared 11% on the news and has more than doubled over the past year.

If the global economy rebounds, we might see Brazilian homebuilder Gafisa bounce higher too. That country's government is another one that has been pouring money into the economy in hopes of stimulating growth, and analysts have been impressed with the improvements seen there. Investors think Gafisa is geared for future growth.

Supplying the next wave
The office-supply sector ought to be a pretty good barometer of how the overall economy here at home is doing. If businesses are expanding, they're going to need more paper clips, while economic contraction will lead companies to reuse even their staples.

Speaking of staples, industry leader Staples (NASDAQ:SPLS) has used the Great Recession to increase its market share at the expense of Office Depot and OfficeMax. While Staples was expanding its retail presence by opening dozens of new stores, Depot and Max were reporting net closures of their bricks-and-mortar base.

In calling out OfficeMax to outperform the market, however, CAPS member Hsub3 sides with analysts who see the entire sector getting a lift from the improving labor market numbers and a better business climate:

As the economy comes back companies will begin to hire again and individuals as well as the employers will require more supplies and services.

The fourth quarter indicated that while real expansion might not be under way, companies are no longer able to draw down on their inventories. The burst in growth we witnessed was more of a restocking phenomenon and should help office suppliers like Office Depot report better numbers.

Checking the mercury
Are these stocks invitingly warm or bitterly frosty? It pays to start your research 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.