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 unknown among investors.

Often, news of a buyout offer sends a stock rocketing. That's what happened when Gerdau (NYSE: GGB  ) offered $1.7 billion for the vehicular products business of Quanex, causing the latter's stock to jump more than 32% in a single day. But beyond these somewhat unpredictable surges, there are stocks with fundamentally compelling stories 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 for not only finding and screening stocks, but also getting their background information.

The story behind the story
Let's dig right in, using the collective wisdom of more than 76,000 CAPS investors to look past the splashy news and find companies showing strong recent momentum.

We'll screen for stocks with a market cap of greater than $100 million that have shown at least 25% price appreciation in the past month. Then we'll weed out stocks with a beta of greater than 3, helping us steer clear of the wild, pump-and-dump land of penny stocks.

Here's a broad sampling of stocks our screen returned today.

Company

CAPS Rating (out of 5)

1-Month Price Change

Rio Tinto (NYSE:RTP)

****

26.1%

STEC (NASDAQ:STEC)

****

33.7%

VeriSign (NASDAQ:VRSN)

***

26.2%

Triad Guaranty (NASDAQ:TGIC)

*

26.2%

MGIC Investment (NYSE:MTG)

*

30.7%

Data from MSN Money, which calculates the one-month price change as the previous day's closing price versus the closing price for the Friday four weeks previous. Star ranking from CAPS. All data as of Dec. 3.

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 its investors' opinions and comments about a company, as well as an overall ranking from its investing community. Lest you think this sounds like following a crowd of lemmings, note that the opinions of the best-performing investors are weighted more heavily than those from poorer-performing participants. Thus, a company's ranking is influenced more strongly by investors who have proved themselves better than the average dart-throwing monkey.

Follow the signs
Cutting dead weight always seems to be a hit with investors, and VeriSign's recently announced effort to get back to its roots in Internet infrastructure services is no different. Investors have bid the stock up following an announcement of a new strategy involving divesting many of the companies acquired over the past several years. The divisions on the docket to be jettisoned include those focused on communications, billing, and commerce. This aims to leave the company focused on the high-margin businesses of Internet naming services, Web certificates, and identity protection services.

With a stock-option backdating investigation and an unbridled acquisition spree now behind it, more than a few investors believe VeriSign is ready to grow again. With its forward earnings multiple near 30, not everyone is convinced the company will be a winner. But 155 out of 181 CAPS investors are still betting VeriSign will beat the S&P going forward.

Picks and shovels
Shares in U.K.-based metals and mining firm Rio Tinto took a big jump a few weeks back when it was disclosed that the world's largest miner, BHP Billiton (NYSE: BHP  ) , made an all-stock offer for the company. The 3-for-1 stock offer was rejected by Rio Tinto, however, as the board of directors believed it significantly undervalued the company.

But the mining sector has been a hotbed of M&A rumor and activity, and investors don't expect the pursuit of Rio Tinto to stop. One of the latest rumors is a Chinese-funded purchase of Rio Tinto aimed at stabilizing supply to the expansive nation, which is gobbling up iron ore faster than a cookie monster at the Keebler plant. Either way, almost 95% of CAPS investors think Rio Tinto will continue to outpace the S&P in the future.

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

So step right up and chime in with your own take on these or any of the more than 5,300 stocks that investors have covered in Motley Fool CAPS. It's totally free to be a part of the service, and the payback is more than worth it.


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