Catching a tailwind when flying can get you to your destination faster. So, too, with investing: Finding stocks that will earn you profits will be faster if you have the wind of investor sentiment at your back.
In the chart below, you'll find stocks that have gotten a big jump in investor confidence. These are formerly low-rated stocks that our CAPS community of more than 115,000 members has since awarded the highest ranking possible. Why is that important? Our data shows that stocks achieving five-star ratings on Motley Fool CAPS have outperformed the market by 12 percentage points, and newly minted five-star stocks represent your best opportunity to capture those returns.
The five companies listed here have jumped from just one or two stars three months ago to the highest four- and five-star ratings today. With such support at their backs, we'll see whether they can withstand the winds of change.
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Stock
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CAPS Rating
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Est. EPS Growth Next 5 Years
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Amerigroup (NYSE: AGP )
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****
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13%
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Family Dollar (NYSE: FDO )
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****
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13%
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DSW (NYSE: DSW )
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****
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10%
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Lionbridge Technologies (Nasdaq: LIOX )
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****
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20%
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Intellon (Nasdaq: ITLN )
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****
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35%
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But just because these stocks are purring, that's no reason to jump into them blindly. Catching a tiger by the tail can end up leaving you scratched and bleeding. That's why we recommend you use this list as a launch pad for your own research and analysis.
Fleet of foot
Being a big name in dollar stores has been a big help for Family Dollar, a chain of deep-discount retail stores. With prices rising, stocks falling, companies filing for bankruptcy protection, and the opportunity to stretch a dollar getting slimmer, consumers have been flocking to discounters such as Family Dollar and Wal-Mart Stores (NYSE: WMT ) to get the biggest bang for the buck. The dollar store saw the stimulus checks boost sales last quarter, but therein lies a conundrum: The back half of the year might not be so stellar in comparison without any additional stimulus.
The buildup in sentiment throughout the summer among CAPS members can be seen in pitches from the likes of Pook600, who thought a bad economy meant good business for Family Dollar: "Unemployment, crappy dollar value and generally more frugal people means this is a winner for now."
The unfavorable retail environment has hit shares of shoe retailer DSW, which has seen its shares cut in half over the past year. Despite the gloom and a forecast that sees same-store sales declining by mid-single-digit rates, DSW reaffirmed its full-year guidance and said it will still open a number of new stores next year, although it will be fewer than originally planned. It also entered into a new financial and human resources services agreement with Retail Ventures (NYSE: RVI ) , which owns 63% of the shoe-store chain.
Admittedly, that probably wouldn't be enough to change the mind of CAPS member ArtVandalay1, who earlier this spring thought this year was going to be something of a lost cause in light of the economic environment: "With the retail industry currently crippled in America, and not much sign of the economy turning around [because of] high prices in gas and [food], there doesn't seem to be much hope for this shoe retailer as it should continue on its year long trend in the red."
Amerigroup has been dogged by allegations that it discriminated against patients eligible for Medicaid but who suffered from otherwise expensive medical conditions that it would be liable for. Although it denied the charges and, along with an industry trade group, filed an appeal of a $334 million jury verdict against it, the health insurer settled with the government last month and got a discount on the fines to boot. It will have to pay only $225 million to settle the claims.
With this chapter behind it now, the Motley Fool Stock Advisor recommendation can once again focus on moving its business ahead. Over on CAPS, more than 87% of the members there think Amerigroup will outperform the market, and that's a nearly unanimous sentiment among All-Star members. To see what the top-rated members in CAPS are saying now about Amerigroup -- as well as other stocks ready to run -- head on over to CAPS and have a look.
Top-flight stocks
There's a saying that the race doesn't always go to the swiftest and the fight to the strongest, but that's the way to bet. We might consider that in investing, too. Strong companies rising quickly in the estimation of investors just might be the place to begin looking for winning bets. So it pays to start your own 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.
Head over to CAPS today, and share your thoughts with other investor analysts on whether you think these stocks are on the move.
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