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)

AT&T (NYSE: T  )

***

$30.18

$2.37-$2.54

eMagin (Nasdaq: EMAN  )

***

$8.12

$0.21-NA

Insmed (Nasdaq: INSM  )

***

$8.41

($1.40)-($1.37)

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
Since AT&T's purchase of T-Mobile will reduce the number of U.S. competitors down to some supposedly unhealthy level and allow it to become the biggest carrier ahead of Verizon (NYSE: VZ  ) , antitrust regulators are going to be scrutinizing the deal closely. Particularly since Sprint-Nextel (NYSE: S  ) is a weak rival with few opportunities for growth, even more so now that the possibility of nabbing T-Mobile has been removed from its grasp.

Adding in T-Mobile will give AT&T the preeminent position not only in the wireless industry, but would further cement its position in the mobile broadband market as well. But analysts are concerned that with the stock's move higher after the merger announcement, there's little room for more upside at the moment, particularly since the regulatory review process will undoubtedly be agonizingly slow.

CAPS member SeanFlynn1 isn't so worried about what the immediate future holds, since he's looking out decades into the future.

It's no secret that many hold this stock for the dividend and I'm included in that bunch. That said, since 70% of the market's returns over the last 85 years has come from dividends, I think T is a safe bet to outperform over the long, long haul so see me in 2035!

You can dial up additional opinions on the AT&T CAPS page on whether merger deal will go through.

Display what you got
While microdisplay maker eMagin saw its stock take a hit after earnings last month, it was a shortsighted move because it's been laying the groundwork for future growth on top of what it was already achieving. Contracts with ITT (NYSE: ITT  ) and FLIR Systems (Nasdaq: FLIR  ) for its OLED technology provide eMagin with a firm foothold to get even bigger.

Since the earnings report the stock has rebounded 37%, no doubt as the potential has sunk in and helped on by the idea that hedge funds are finding it an attractive investment at these levels. A little more than a dozen CAPS All-Stars have weighed in on the microdisplay maker and 88% of them believe it will go on to outperform the broad market averages. You can keep tabs on how it responds to all the attention by adding eMagin to your watchlist.

Getting the urge
So far the reverse split is working out. Biotech Insmed used the tactic -- a move typically deployed by financially troubled firms to stay relevant in the stock market -- to regain compliance with Nasdaq listing rules. It effected a 1-for-10 reverse split in early March to get its stock up above the requisite $1 per share mark, and has kept it there for 10 consecutive days. Not only has it stayed above the necessary level, but it's actually advanced 68% since then.

No doubt helping the move higher was news the FDA cleared the way for Insmed to begin pivotal phase 3 clinical trials of its lung infection therapy Arikace. Insmed is flying under Wall Street's radar right now, and only a few dozen CAPS members have been following it as well. Of those who have indicated a preference, 93% see it being successful.

It's often difficult to find news of such low-profile companies, but the Fool's free portfolio tracker aggregates all the developments in one place. You can also share your thoughts on its prospects by adding to the Insmed CAPS page.

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.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

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 April 14, 2011, at 8:19 PM, conradsands wrote:

    Taking into account the whole U.S. market, a combination of Dallas-based AT&T and T-Mobile may raise the Herfindahl- Hirschman Index, an accepted measure of market concentration, to 3,216 from 2,848, according to a Bloomberg analysis. Any score above 2,500 can indicate a highly concentrated market, and an increase of more than 200 points is “likely to enhance market power,” according to federal guidelines.

    If this ridiculous deal goes through, Sprint will be the only low-priced post-paid wireless carrier left in the United States. AT&T and Verizon are two of the top corporate lobbyists in the country, so I'm sure the Feds are happy to oblige anything they want to do to secure a stranglehold on the market at the expense of the consumer.

  • Report this Comment On April 14, 2011, at 8:20 PM, conradsands wrote:

    Snippets from CNN story …

    AT&T lobbyists push for T-Mobile deal

    March 28, 2011

    For years, AT&T has been one of the biggest political and lobbying forces in town. Last year, it spent $15.3 million and had 93 lobbyists on its roster, including six former lawmakers. Germany's Deutsche Telekom spent $3 million on lobbying for T-Mobile USA in 2010, armed with 41 lobbyists and one former lawmaker.

    Many lawmakers have a personal interest in seeing AT&T do well. AT&T ranked as the sixth most popular investment among members of the House and Senate in 2009, the most recent year for which such data is available, according to the Center for Responsive Politics.

    And AT&T is considered a heavy hitter during campaign election cycles. In 2010, donors with links to the company made nearly $4 million in campaign contributions to candidates running for federal office.

  • Report this Comment On April 14, 2011, at 8:20 PM, conradsands wrote:

    AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon (the 10th leading U.S. lobbyist) and AT&T (the 12th leading U.S. lobbyist) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to push the U.S. market into a wireless industry duopoly -- the American consumer.

  • Report this Comment On April 14, 2011, at 9:31 PM, pryan37bb wrote:

    I wouldn't call it a duopoly. Don't forget US Cellular, a fast-growing telecom that recently topped Consumer Reports' customer satisfaction poll. And I think Sprint will still be relevant if this deal goes through. That said, I'm long Verizon, and frankly, I don't really care whether the deal will go through or not, because I think it bodes well for VZ that AT&T has to keep buying providers to stay on top. VZ's got them on the ropes, and I think they're well-situated one way or the other.

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