More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news or other short-term forces can send individual stocks up by 10%, 25%, even 50%. For example, when rumors broke of Bank of America's (NYSE: BAC  ) pending $4 billion stock offer for beleaguered home loan provider Countrywide Financial (NYSE: CFC  ) , the latter's stock jumped more than 50% in a single day.

But beyond one-time blips like this are stocks with compelling reasons for their recent momentum -- provided you can find them. That's where Motley Fool CAPS comes in.

The story behind the story
CAPS is no crowd of lemmings; its best-performing investors' opinions do more to shape each company's rating than the picks of their poorer-performing peers. Let's use the collective wisdom of more than 81,000 CAPS investors to filter out the noise and find companies showing strong momentum. We'll screen for companies whose stock price is up at least 20% in the past month, with a market cap greater than $100 million and a beta of less than 3. That'll keep us clear of the wild, pump-and-dump land of penny stocks.

Here's a sampling of stocks our screen returned.

Company

CAPS Rating
(Out of 5)

1-Month
Price Change

Yamana Gold (NYSE:AUY)

*****

28.9%

Terra Nitrogen (NYSE:TNH)

****

23.6%

Barrick Gold (NYSE:ABX)

****

32.2%

American Dental Partners (NASDAQ:ADPI)

**

93.9%

Origin Agritech (NASDAQ:SEED)

**

48.4%

Return data is calculated as the difference between the closing price on Dec. 14 and the closing price on Jan. 15, as per MSN Money's screen. Star ranking from CAPS. Data as of Jan. 15.

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.

Digging gold
With just about every company blaming the general economy for any negative aspects of their earnings, investors ducking for cover are increasingly buying gold as a defensive hedge. And with spot prices for gold rising 12% in the past month, it's no surprise that gold mining companies are building off this momentum.

But as my Foolish colleague Toby Shute points out on his way to arguing that Yamana Gold could be the best stock for 2008, there's little value in holding a bunch of mines if ore can't be extracted for a profit. To this end, Yamana pleased investors recently by estimating that its cash costs per ounce at its most significant mines would be low by industry standards for 2008.  

Also particularly attractive is Yamana's plan to more than double production in the next four years. Following the acquisition of fellow gold and copper producers Meridian Gold and Northern Orion Resources, Yamana plans to produce more than 2.2 million ounces of gold in 2012. CAPS investors on the whole are bullish about Yamana's future, with 504 of the 509 All-Stars rating the company believing it will outpace the general market in the future.

Not-so-pearly whites
Litigation seems to keep playing a larger role in the success of a company's product or service. For small companies, lawsuits can spell the difference between business as usual and financial disaster. Such is the case with dental practice services firm American Dental Partners. When a jury slapped the company with a $130.5 million judgment for breach of contract, the already leveraged company saw its stock plunge by more than 75%.

A few weeks later, American Dental was able -- in principle -- to settle the lawsuit under much less burdensome terms, which included transferring some assets and forgiving $3 million in accounts receivable. The stock nearly doubled on the news, to $10.20 per share, but still sat nearly 50% below the price before the initial judgment. Since then the company has had its creditors relax terms on its loans to avoid default provisions, but a definitive agreement to settle the lawsuit is still pending. At this point, CAPS investors retain some skepticism about the company's prospects, as nearly 13% of investors rating the company believe it will underperform the S&P.

What's your story? Whether you buy the tale 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 easier.

Step right up and add 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 community, and the payback is more than worth it.


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