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. Medical-device manufacturer Medtronic's (NYSE:MDT) $3.9 billion offer for Kyphon (NASDAQ:KYPH) caused the spinal-device maker's stock to jump 24% the day of the announcement. 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 20% 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 sampling of stocks that our screen returned today.

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.

New cell better than the old cell
Wireless communications product and service provider Telular has been showing a nice up trend lately thanks to an ongoing transformation at the company. Shares jumped when the company reported a profitable fiscal third quarter thanks to growth in cellular-based home security alarm systems. The move to the black side comes after several years of ongoing losses at the firm, and even included a projection of 30% sequential revenue growth from its cellular security products in the next quarter as customers upgrade from outdated analog systems.

To turn the company around, top management has been shuffled and the company is refocusing on more profitable operating segments. This includes divesting its fixed cellular phone segment -- which is basically a cell phone on your desk -- to focus on higher-margin business. CAPS investors chiming in on Telular like the new version of the company and believe the new management focused on a niche market is reason to be cheery. Indeed, all 18 investors giving an opinion vote that the company will outperform the market going forward.

If I only had a brain ...
Highlighting another limitation in screening stocks based upon numbers, the CAPS community has lots to say about recent momentum in drug developer Neurochem. Though shares in the single-star company have surged almost 20% in the past month, there's more to the story with this neurological-disorder specialist as the stock is still down 40% this year, even after the recent rise.

Neurochem has been suffering from a string of bad news coming mostly from the FDA concerning major drugs in its pipeline. In mid-July, the FDA requested more data and another efficacy study pertaining to the company's drug Kiacta -- which treats a disease in which organs accumulate deposits of abnormal proteins. This comes after continued delays in releasing study data on Neurochem's Alzheimer's drug, Alzhemed, which is currently in phase 3 trials. Recent news that the FDA has granted "fast track" status for the approval of the drug has not exactly overwhelmed investors though -- the ambiguous effectiveness of Alzhemed in trials doesn't sit well with more than 90% of CAPS All-Stars who weighed in. They give the stock the thumbs-down. 

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 these collective opinions do make an individual's job of due diligence much easier.

So step right up and chime right in with your own take on these or any of the more than 4,900 stocks that investors have covered in Motley Fool CAPS. Search the database by ticker, company name, or CAPS player. It's totally free and the payback is more than worth it.

Kyphon is one of the 160 stocks tagged in CAPS for close scrutiny in the Rule Breakers Universe. Take a free 30-day trial of the Motley Fool Rule Breakers newsletter service.

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.