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 170,000-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
You have to imagine biotech investors are like those cartoon characters who bite their fingernails down as if they were on a typewriter (you remember what a typewriter was, right?). Both hands up to their mouths, they chew away across the tops -- ding! -- back to the beginning for another round.

How else can you explain their reaction to Momenta Pharmaceuticals? They and Novartis' (NYSE: NVS) Sandoz unit won a big approval from the FDA to manufacture a generic version of Lovenox, an injectable drug used to prevent and treat blood clots in the leg. The stock shot 76% higher on the news. Then, predictably, sanofi-aventis, which holds the Lovenox patents that are worth some $2 billion in sales, sued to block the approval from going through.

Momenta's stock tumbled when the suit was announced, but you had to expect the pharmaceutical to respond so the reaction seems a little over the top. The stock still hasn't recovered despite a judge refusing to halt the manufacturer of the Lovenox generic.

And in a bit of "what have you done for me lately," Momenta's stock has been pressured because a court refused to issue a summary judgment on its behalf invalidating Teva Pharmaceuticals (Nasdaq: TEVA) patents on blood thinner Copaxone. These seem like the normal give-and-take in generics, and not worthy of the Nervous Nellies betting on them.

CAPS members remain upbeat, however, with 93% of those rating Momenta expecting it to go on to outperforming the broad market averages.

A clear road ahead
Speaking of upbeat, highly rated CAPS All-Star nonzerosum says recent analysis that's pessimistic about the solar industry misses a key aspect of whether pricing is really competitive.

Solar is economical at the margins because the wholesale/bulk price per Watt for panels is around $1.65 and dropping. The key is to look at the marginal situation because that is where any new technology first gets sold. Look at locations where electricity is very expensive and where sun is plentiful, like Hawaii (Big Island) where consumers pay $0.38 per kWh. Other examples include Israel and parts of Europe like Spain.

If you agree with that analysis that solar shops like ReneSola (NYSE: SOL) and LDK Solar (NYSE: LDK) offer up under appreciated opportunities (and his entire argument makes more than just a little sense), then you might also want to consider a company like Satcon Technology, which makes key components for utility-scale alt-energy projects. It is the largest manufacturer of power inverters in the country.

While financing has been and probably will continue to be an issue within the industry, nonzerosum says solar stocks generally offer "an attractive risk reward trade-off because they are priced very modestly despite rapidly growing revenues and profits." With earnings at Satcon expected to more than double this year, it would seem to fit the bill too.

Golden globes
Office Depot is another of the stocks listed here today expected to move from losses to profits over the next year. Unlike its rival Staples that has remained profitable throughout the recession, Office Depot has had to endure a severe downturn in its performance along with the economy. This past quarter when flat sales at Staples generated a 38% profit increase, Office Depot saw its sales drop 4% although losses narrowed to just $0.07 a share from $0.31 the year before.

If analysts are correct, that condition should continue to improve, but it's going to be a much smaller competitor than it was before. Store closings and cost controls have constrained its ability at a time when Staples has expanded strategically. If it can navigate those competitive waters, CAPS member Piggybank99 said it should ultimately do more than just survive, but actually thrive: "It should be a good long term pick as it has an indispensable array of goods. It's only problem will be competition."

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.