These Cold Stocks Are 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 165,000-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; NA = not available.

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 Federal Reserve says U.S. companies have built up their balance sheets and are sitting atop a pile of cash and liquid assets larger than at any time previously recorded. With $1.84 trillion in the bank, companies have decided not to invest, but instead to protect their downside from the second scoop of a double-dip recession.

Analysts are slowly coming around to this way of thinking, and they're generally paring back their earnings estimates for the next year. Company forecasts are starting to get gloomy, and Wall Street is picking up on that. FedEx (NYSE: FDX) disappointed the market after it said 2011 profits would come in around $5.00 a share at most, below analyst forecasts of $5.05. Its stock fell 15% over the next two weeks. Analysts have cut their estimates on Google (Nasdaq: GOOG), and Goldman Sachs' (NYSE: GS) profit estimates went from $4.53 a month ago to just $2.30, a near 50% reduction in expectations.

The market is reappraising the outlook for the future, and it's not looking too good. When we look at the three companies above that have investors rethinking their opinions about their prospects, we see that Wall Street views their future as a mixed bag. While analysts view Tower Semiconductor making a strong upside move both next quarter and next year, telecom equipment maker JDS Uniphase is treading water, while A123 has been significantly downgraded. Losses for the lithium-ion battery maker are expected to widen at a greater rate than previously thought, dropping nearly 30% over the past few months.

CAPS member ChrisHamiltonRN says the outlook on Tower is better because of a spate of positive news reports. After reporting fourth-quarter results, the pure-play chip foundry said the $81.8 million on its balance sheet (more than double the level it had the previous year) would be used to make acquisitions. It also signed a few strategic agreements and was restructuring its debt load.

JDS Uniphase was able to record stronger bookings last quarter, but whether that translates into actual business remains to be seen, and investors are cautious about the outcome. There are industry shortages it will have to overcome even though some analysts expect it to do well, at least because of seasonal strength.

Cautious though they are, 83% of the more than 700 CAPS members rating the telecom equipment specialist think it will outperform the broad market averages. Wall Street analysts tracking it are unanimous in their belief that it will.

Battery maker A123 Systems doesn't enjoy the same level of goodwill. While the recent IPO by Tesla Motors (Nasdaq: TSLA) has many investors more hopeful that plug-in electric vehicles will become a reality, until there's some significant product rolling off the assembly line, analysts are urging a wait-and-see attitude on battery makers.

Tesla still needs to prove itself, and A123 System has yet to overcome its own disappointing IPO last year. CAPS member RAY333 sees the fortunes of both the carmakers and the battery producers rising and falling in tandem:

I believe this company has their foot in the door, to control the car battery business. Alot will depend on the quality of the car maker. If the first cars are dependable. The company outperforms, if the cars have problems the company underperforms. High risk, High reward !

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.