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.

Company

CAPS Rating 
(out of 5)

Recent Price

EPS Estimates 
(This Year-Next Year)

Banner (Nasdaq: BANR  )

***

$1.65

($1.06)-($0.43)

Health Care Property Investors (NYSE: HCP  )

***

$35.95

$2.15-$2.26

Rambus (Nasdaq: RMBS  )

***

$19.70

$0.91-($0.13)

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
It shouldn't have been too surprising that regional bank Banner saw wider losses this quarter as it warned it would at the beginning of the month. With loan losses rising and having to write down the value of more real estate, Banner's performance has taken a hit.

I've been pointing out that many banks are juggling their loan losses reserves to make their earnings look better than they are. Banks large and small, from Wells Fargo (NYSE: WFC  ) to Citizens Republic Bancorp (Nasdaq: CRBC  ) , have dipped into the reserve to improve their profit picture. Banner, though, had actually increased its provision by $2 million from the March to June quarters, raising it to $16 million, and it raised it again in the this quarter to $20 million. With most of its loans in the commercial real estate sector in the Pacific Northwest, it's an indication of how poorly this segment of the economy is doing and will do in the future.

While less than 80% of CAPS members rating Banner think it will outperform the market, last month highly rated CAPS All-Star bsharvy was intrigued by it trading at less than its book value: "Just betting on the high tangible book value. With real money, I'd be tempted at around $1.80 or less."

Looks like he may get his chance now, but let us know on the Banner CAPS page whether the CRE sector will cause investors to close the book on this bank .

A clear road ahead
While the commercial real estate sector has given Banner a drubbing, the subsector in health care hasn't fared nearly as bad. In fact, the National Investment Center for the Seniors Housing & Care Industry says occupancy rates for assisted living properties rose to 88.3% in the second quarter, making it an attractive investment. Compare that to the commercial sector where vacancy rates have hit 17-year highs.

Although the assisted living sector appears to have a level of stability not found in the broader sector, it hasn't been a life of leisure for operators either. Sunrise Senior Living (NYSE: SRZ  ) has adopted a policy of get bigger by going smaller by selling off assets, and Health Care Property Investors, an industry REIT, just reported that a chain of 25 properties it has a 35% interest in and leases to Horizon Bay Communities is impaired, impacting earnings by a penny a share. Ventas, the industry's largest U.S. owner of senior housing communities, is one of several companies using the opportunity to acquire even more properties, solidifying its industry-leading position.

Only you can decide whether a REIT like Health Care Property Investors is right for your portfolio, so add it your My Watchlist page and have all the Foolish news and analysis about this stock aggregated in one place.

Golden globes
Rambus has been struggling to regain momentum after the U.S. Court of Appeals ordered a rehearing of its patent claims against certain tech companies, though it did get a bounce when the International Trade Commission ruled in July that NVIDIA (Nasdaq: NVDA  ) violated Rambus's patents. The graphics chip maker will now pay Rambus a 1% royalty rate on SDR memory controllers and a 2% royalty rate for other memory controllers.

That undoubtedly has investors feeling a lot more bullish about Rambus future and 84% of CAPS members rating it believe it will go on to chip out market-beating returns. Hotpicks101 is one who speculates there will be more court rulings in Rambus' favor.

Head over to the Rambus CAPS page and let us know if you think this will be a company to remember when all the dust settles.

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.

NVIDIA is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey currently does not own any stocks as you can see here. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 29, 2010, at 4:43 PM, ronbeasley wrote:

    The bank comments are inane. Credit quality is improving, Wells and other banks aren't dipping into reserves to manage earnings.

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