5 Cold Stocks Heating Up

When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.

Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 145,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence, and see whether they're truly heating up -- or headed back to the deep freeze.

Company

CAPS Rating (out of 5)

Recent Price

EPS Estimates (This Year-Next Year)

China Yuchai (NYSE: CYD  )

***

$18.71

NA-NA

DepoMed (Nasdaq: DEPO  )

***

$3.25

($0.49)-($0.43)

Immunomedics (Nasdaq: IMMU  )

***

$4.22

$0.13-$0.27

Quantum (NYSE: QTM  )

***

$2.92

$0.24-$0.23

Telestone Technologies (Nasdaq: TSTC  )

***

$21.40

NA-NA

Source: Motley Fool CAPS.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too. 

Caution: Contents may be hot
Chinese wireless network operator Telestone Technologies supplies 2G and 3G access coverage to that country's biggest telecom companies, including China Mobile (NYSE: CHL  ) and China Telecom. With the Chinese government planning to invest some $66 billion on 3G initiatives over the next few years, according to the market researchers at MainFirst, there's plenty of reasons for CAPS member sprint17 to believe that Telestone will dial up some serious profits:

This company is poised to win big in the China market, they sell their products to the three largest cellular communications companies in China and are in the process of making China's 3G map look like Verizon's (at least in the East, Western China is desolate). The huge run up in the price of this stock is not coincidence, it is because this stock appears to be holding a full house with a flush on the table.

Play it again, Sam
Another area ripe for growth is data de-duplication. Anyone who's worked in a large, bureaucratic organization is familar with the redundancy that often arises, as multiple copies of the same file are saved on disk and in paper form. Quantum hopes to reverse that trend; its software seeks and destroys duplicate documents on a company's system, thereby saving businesses money in storage costs.

Last year, storage specialist EMC (NYSE: EMC  ) purchased another de-duplication outfit, Data Domain, for $2.1 billion. EMC valued Data Domain at around 60 times earnings, since it figured this niche market was going to explode. A similar valuation on Quantum's earning estimates for 2011 would give it a stock price of about $19 a share. Even half that amount would mean significant upside price potential -- but only if someone were interested in buying it.

Right now, Quantum is flying under the radar of most of Wall Street, with only two analysts covering it. Slightly more than 100 CAPS members have also weighed in on the data storage specialist, and 85% believe it will outperform the market. Perhaps more tellingly, 92% of the All-Star members who've rated Quantum agree with that assessment. (Wall Street is unanimous in its opinion, too.)

Head over to the Quantum CAPS page, and store your opinion on whether a larger storage play will duplicate EMC's efforts.

Checking the mercury
Are these stocks invitingly warm or bitterly frosty? It pays to start your 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. Then weigh in with your own thoughts on which stocks you think are hot little numbers, and which offer cold comfort. It's free to sign up.

The Fool owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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