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 160,000-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.

Company

CAPS Rating
(out of 5)

Recent Price

EPS Estimates (This Year-Next Year)

Cerus

***

$2.87

($0.36)-($0.17)

DryShips (Nasdaq: DRYS  )

***

$5.75

$0.88-$1.22

EZchip Semiconductor (Nasdaq: EZCH  )

****

$19.23

$0.57-$0.91

Louisiana-Pacific

***

$8.19

($0.33)-$0.13

Rosetta Stone (NYSE: RST  )

***

$25.03

$0.97-$1.44

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 dry bulk shipping market continues to be plagued by excess capacity. The shipbuilding industry has seen demand plummet as a result, with 60 ship orders being cancelled in the month of January alone. Cantor Fitzgerald suggests that drybulk fleet size could expand 14% this year even if half of all orders are cancelled. While commodity prices have rebounded a bit, shipping them across the oceans has not enjoyed a similar bound. It could be a problem for DryShips, whose shares are down around 11% over the past six months.

There is some potential for a recovery. Eagle Bulk Shipping (Nasdaq: EGLE  ) beat expectations, though revenue was still well below last year's effort, and fleet utilization rose to 99.6% (from 99.5%) with four more ships in use than a year ago. If China maintains its growth policies, that could help soak up the excess inventory of ships.

One indicator of an anticipated recovery might be the number of IPOs that have taken place in recent weeks, though most analysts are skeptical. Baltic Trading (Nasdaq: BALT  ) was one of three that just came on the market, and another two are scheduled to go public soon, if they haven't already. The reason analysts are skeptical is because most of these new shippers have no ships to their name!

CAPS All-Star member BillZack believes that while it may take some time, the shipping industry is in one of its down cycles and will ultimately recover. But he might be a bit on the enthusiastic side:

Double dip recession or not, a rebound is coming in the next 6-18 months. When the economy begins to rebound in earnest. DryShips is a 2-3 Bagger!

Don't get disconnected
EZchip Semiconductor may be one of the most important companies you've never hear of. It's customer list includes Cisco (Nasdaq: CSCO  ) , and its chips have appeared in equipment from LM Ericsson, Ciena (Nasdaq: CIEN  ) , and others.

EZchip just saw a 34% year-over-year jump in fourth-quarter revenue, and its next generation chip, NP-4, is in testing. CAPS member jdentinger says the chipmaker's time has finally arrived:

They are in the sweet spot of network traffic driven by video and high speed wireless. Securing Cisco as a key customer validates the quality and design wins are in many vendors. Huge secular undercurrent in telecom favors them. Takeover threat is minor due to Isreali government funding regs. ... Been following development of this company for years, it's time has come.

Easy as A-B-C
Berlitz used to be the name synonymous with learning a new language, but Rosetta Stone has since replaced it by becoming one of the most publicly visible companies to teach you how. With its ubiquitous commercials and kiosks at malls hawking its CDs, All-Star CAPS member CREWatcher says there's little chance the wheels will come off Rosetta Stone's growth vehicle. Here's an excerpt:

While competitors in language learning software lack brand recognition, there are still a lot of competitors. New entrants are also possible. The market is huge and fractured. ... They have the opportunity to grow into the position of a Coke with no Pepsi. But, they are still very young, moving very fast, and could fall apart completely.

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.

Rosetta Stone is a Motley Fool Stock Advisor pick.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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