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; 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
Lately, the FDA has been operating under the aegis of the overused phrase "an abundance of caution." Despite a 50/50 split among members of it advisory committee on whether to allow weight-loss drug Meridia from Abbott Labs (NYSE: ABT) to stay on the market, the FDA ruled it should be removed.

While the agency doesn't have to follow the advisory panel's recommendations, it goes along with the panel three-quarters of the time, so with the advisors recommending the agency not approve new weight-loss drugs from Arena, VIVUS (Nasdaq: VVUS), and Orexigen Therapeutics, investors ought to consider there's a 75% chance they're not going to get the nod.

CAPS member randomtask16 doesn't think there's hope for Arena, as Locaserin is just about all it has going for it:

It's safer than Phen-Phen and some others, but the FDA is the ultimate factor in this companies future. If they deny, it's game over for now, Lorc is their entire pipeline. After denial of other weight loss solutions and now Meridia being pulled from the market I see doom on the horizon in the near future.

A clear road ahead
Investors in stem-cell researchers Geron, StemCells (Nasdaq: STEM), and Cytori Therapeutics (Nasdaq: CYTX) have faced disappointments, too, such as when a judge temporarily blocked President Obama's expansion of the privately funded stem-cell lines that federally funded scientists could research.

Geron jumped when an appeals court put an injunction on the lower court's ruling and it got another boost when it said it enrolled its first patient in its stem-cell clinical trials. Yet it faces more risk than either StemCells or Cytori because its research is in embryonic stem cells, which elicit a lot more emotion than other stem-cell research.

If it can get beyond the regulatory morass and the emotional reactions, CAPS member Groovatorium believes Geron could outperform the market over the next few years:

Geron has a stem cell line that uses two 'big guns' against cancer that are unmatched in the current biopharm market. First: they have a number of products in their pipeline that specifically target telemorase, an enzyme that keeps cancer cells alive indefinitely. Second: they have been granted permission to conduct the first human-based trial of stem cell therapy to introduce oligodendrocytes, a concept that has the possibility to restore function to patients with previously paralyzing spinal cord lacerations.

Rev it up
September auto sales in China rose 17% over the previous year and were up almost 25% from August's numbers. That seems to be right in line with a survey conducted earlier this year by global management consulting firm A.T. Kearney that found roughly 75% of auto suppliers expect double-digit growth in China.

Warren Buffett's BYD hasn't been participating in the growth story as it expects full-year sales to fall by 25% from 2009. It might even be worse than that, as the government seized seven of the company's manufacturing plants because it expanded on government-owned property it didn't have rights to.

More than 91% of the CAPS members rating China Yuchai, one of the country's top engine makers and auto suppliers, believe it will have no problem driving up market-beating performance in the future. Head over to the China Yuchai CAPS page and let us know if you think this parts supplier will stall out.

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.