These Cold Stocks Are Heating Up

When a stock's share price is lower than the mercury in 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 has made that leap up.

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.

Company

CAPS Rating 
(out of 5)

Recent Price

EPS Estimates (This Year - Next Year)

Amedisys (Nasdaq: AMED  )

***

$24.01

$4.32 - $3.64

Cypress Bioscience (Nasdaq: CYPB  )

***

$3.82

($0.60) - ($0.18)

Deckers Outdoor (Nasdaq: DECK  )

***

$50.37

$3.53 - $3.94

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 you were an investor who followed technical analysis strategies, the double bottom the stock chart for Amedisys has apparently formed might hearten you. According to TA theory, a "double bottom" is when a stock price chart shows two consecutive drops bookending a sharp rise in price. It's a bullish signal that resembles the letter W and may represent a reversal of fortunes for the company. But it would still need to break through key resistance levels to confirm the pattern.

If the above sounded like gobbledygook to you, join the club. It's a reversal pattern unless it's not, and we can only prove it after the fact when the stock has already run up in value. Fools prefer to look at the soundness of a business and its fundamentals, and would probably be more concerned with the Justice Department investigation into Amedisys rather than stock price squiggles on its chart.

The DOJ is looking into the billing practices of Amedisys, while the SEC has launched a similar investigation. They're checking to see whether Amedisys, Almost Family (Nasdaq: AFAM  ) , Gentiva, and LHC Group increased their billing to boost profits. Documents regarding reimbursement and billing claims for home health services submitted to Medicare going as far back as 2003 have been subpoenaed.

CAPS member circaclown says that while it's a concern, one factor could lead to optimism.

Investigation making the stock price plummet. I am not so sure that is enough to wipe out 1/2 the market cap. Also, insiders buying

You can stay on top of Amedisys by adding it to your My Watchlist page, where all the Foolish news and analysis is aggregated in one place.

A clear road ahead
Can a company's products that have grown in popularity for years still be considered a fad? Doesn't that usually suggest a growth spurt followed by a decline and eventually disappearance into the shadows? Deckers Outdoor still seems to be dogged by the charge that its uber-comfortable Ugg boots are a fad despite the fact that they generated $88 million in sales in the latest quarter, 700% more than when Oprah catapulted them to fame in 2005. Look to Heelys or Crocs (Nasdaq: CROX  ) for a trendy shoe, too, though Crocs has proven more resilient than many of its critics -- including me -- had expected.

With the holiday season fast approaching, CAPS member Hotpicks101 thinks investors shouldn't dismiss Ugg boots.

Great past performance and growth. Trades at a low [P/E] for such a high growth company. Playing the retail comeback along with holiday season coming up. Don't think its just a fad.

Golden globes
With investment management firm Ramius still in pursuit of Cypress Bioscience, investors might think a new suitor will step forward and increase the bid for the company. Management has twice rejected offers from Ramius because it believed they low-balled the value of the company, which develops pharmaceuticals for the central nervous system. The latest offer -- $4.25 per share -- is a 70% premium to the closing price of the stock back in July when the first bid was made, but it expires next week.

Ramius says it's going to take its offer directly to shareholders, but management has adopted a "poison pill" agreement to make any hostile takeover difficult while it pursues other opportunities. The stock and investors have been suffering ever since Cypress Bioscience discontinued its marketing partnership with Forest Labs for Savella, a fibromyalgia treatment that competes against Pfizer's  (NYSE: PFE  )  Lyrica and Cymbalta from Eli Lilly  (NYSE: LLY  ) . One of those other opportunities is a deal with Marina Biotech allowing it to acquire the patent rights and technology for carbetocin, a treatment for autism.

All-Star CAPS member TMFDeej writes that a higher buyout offer is possible.

The Ramius sharks are circling. I wouldn't be surprised if Cypress ends up getting bought out at more than its original $4/share offer.

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.

Pfizer is a Motley Fool Inside Value recommendation. The Fool owns shares of Almost Family. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.

Fool contributor Rich Duprey does not own any stocks right now, as you can see here.


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