More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, headlines and ticker feeds tout soaring stocks. Some juicy rumor or biotech wonder drug seems to be reason enough for a stock to climb 10%, 25%, even 50% -- sometimes in a single day. Sometimes, the companies are familiar, but many are names and stories entirely unknown to investors.

Often, news of a buyout offer that investors didn't anticipate sends a stock rocketing. Aluminum giant Rio Tinto's (NYSE: RTP  ) $38.1 billion offer for Alcan (NYSE: AL  ) topped a $28 billion bid from Alcoa and caused Alcan's stock to jump almost 10% in a single day. But beyond these somewhat unpredictable surges, there are stocks out there with a fundamentally compelling story behind their recent momentum. The difficulty comes in sifting through the daily trading and news-driven gyrations to find them.

Luckily, there's help right at your fingertips. Motley Fool CAPS is a great tool not only for finding and screening stocks, but also for getting a quick read on the fundamental stories behind them. In addition, investors can quickly see just who -- from the big names on Wall Street that we track to the regular Joes on Main Street -- is bullish or bearish on the company, and why.

The story behind the story
Let's dig right in, using the collective wisdom of more than 60,000 CAPS investors to look past the splashy news and find companies showing strong recent momentum.

We'll screen for stocks showing at least 30% price appreciation in the past month. Then we'll weed out stocks with less than a $100 million market capitalization and those with a beta greater than 3. This will help keep us out of the wild, pump-and-dump land of penny stocks. Here, then, is a broad sampling of stocks that our screen returned today.

Company

CAPS Rating (out of 5):

Price Change Last Month:

Diana Shipping (NYSE:DSX)

*****

25%

Intuitive Surgical (NASDAQ:ISRG)

****

46.6%

TBS International (NASDAQ:TBSI)

****

43.9%

Syntax-Brillian (NASDAQ:BRLC)

**

27.7%

Research In Motion (NASDAQ:RIMM)

*

35.9%

Data from Yahoo! Finance. Star ranking from CAPS. All data as of July 25.

Now let's sift further through this list of stocks that have thumped the market over the past month -- and find out why they've performed so well.

The method behind the madness
CAPS contains a searchable record of investors' opinions and comments about a company's fundamentals, value, and prospects at any given time. Users can see what other investors were saying about a company before a huge surge in price, and whether those investors still favor it after the run-up. A company's star ranking also has a history, showing whether that company has been rising or falling in the investing community's favor.

Lest you think that keying off CAPS ranks is equivalent to following a crowd of lemmings, note that the CAPS system weighs the opinions of the best-performing investors more heavily than those who haven't done so well. Thus, a company's ranking is influenced more strongly by investors who have already proved themselves better than the average dart-throwing monkey.

Sail away
Dry-bulk carrier Diana Shipping tops our list of momentum stocks with a five-star rating in CAPS. Investors have been piling into Diana stock lately because of optimism about continued demand for shipping of dry goods such as iron ore, coal, and steel around the world. Diana has invested in a newer fleet of ships, with the average age of its fleet just past three years old. That's well below the average of its peers and makes the company attractive to raw-material companies looking for reliable delivery.

Dry-goods shippers have lately been enjoying record charter rates to deliver booty, with more international companies paying premium shipping rates as demand outstrips the supply of ships. While some onlookers are concerned that demand may slacken, many investors see no slowdown in demand from areas such as China and India, where industrial production has kept basic materials flowing in at a record rate. A generous dividend yield of 7.2% on top of this optimism is enough for 97% of CAPS All-Stars to give Diana Shipping the thumbs-up.

Slow motion
A stock earning far less love in CAPS-land is Research In Motion. Even though shares have soared an amazing 3,300% in the past five years, investors strike a bearish tone over the maker of BlackBerry devices and software.

The recent surge in RIM's stock was fueled by spectacular first-quarter earnings and upgraded guidance that impressed even optimistic analysts. It's pretty hard to argue with revenue and earnings growth north of 70% for a $40 billion company.

But RIM wasn't done there -- the BlackBerry maker announced that it now offers service in China, where it sees demand from corporate consumers for the addictive device. This news adds to the growing evidence that various BlackBerry devices such as the Pearl and Curve also appeal to consumers -- or "prosumers" as they are sometimes called -- who can afford to pay a little more for a smart, connected device.

Given all of this news, I have to disagree with the nearly 50% of CAPS investors who believe RIM will underperform the market. The company has developed a wide moat around a killer product and accompanying services -- something rarely seen in electronic devices. The stock is insanely valued for sure, but I cannot construct a scenario in which any competing product -- even the mighty iPhone -- can even make a dent in the armor that Research In Motion has surrounding its offering.

What's your story?
Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or souring stock, your own research is more important than collective opinions. But thankfully, these collective opinions make an individual's job of due diligence much easier.

So step right up and chime in with your own take on these or any of the more than 4,700 stocks that investors have covered in Motley Fool CAPS. It's totally free to be a part of this story, and the payback is more than worth it.

Intuitive Surgical has returned more than 350% since it was initially recommended in theMotley Fool Rule Breakers newsletter service. To see what selections David Gardner is making today, take a free 30-day trial.

Fool contributor Dave Mock has his own story, but he won't bore you with the details. He owns no shares of the companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy has the momentum of a freight train but can stop on a dime.


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