More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news and other short-term forces can send individual stocks up by 10%, 25%, even 50%.

For instance, reaffirmed guidance and a new $50 million credit facility to help with clothing retailer Talbots' (NYSE: TLB  ) turnaround was enough to kick the stock price up 25% in a single day last week.

But beyond less-predictable events like that one are stocks with fundamentally compelling reasons for recent momentum. The trick is to find those stocks. 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 110,000 CAPS investors to filter out the noise and find companies offering strong momentum.

We'll use CAPS' handy stock screening tool to quickly zero in on companies with a stock price increase of at least 15% in the past four weeks, a market cap of 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 sample of stocks our CAPS screen returned:

Company

CAPS Rating
(Out of 5)

Four-Week
Price Change

Agrium (NYSE: AGU  )

*****

23.6%

Brigham Exploration (Nasdaq: BEXP  )

*****

32.1%

Patriot Coal (NYSE: PCX  )

****

60.7%

Western Refining (NYSE: WNR  )

****

65.0%

Anheuser-Busch (NYSE: BUD  )

****

19.7%

Return data is calculated as the difference between the closing price on May 19 and the closing price on June 16, per Yahoo! Finance. Star rankings from CAPS.

Now let's get some context behind the recent momentum.

Looking high
While rumors persisted for the potential acquisition of Anheuser-Busch, investors were still surprised with the $46 billion that InBev was willing to offer for the American icon. But the King of Beers has left investors speculating with talk of a potential merger with Grupo Modelo in a move that would nix the InBev deal. With soaring commodity prices pinching Bud where it hurts most, more than a few investors believe Anheuser-Busch should take the InBev money and run.

Speaking of soaring commodities, oil and gas company Brigham Exploration has been moving higher on increased production prospects from multiple wells despite questions about its operational capabilities. And potash producer Agrium saw its stock hit its all-time high last week when it raised the outlook for its second-quarter financials.

The fertilizer market has definitely hit a fever pitch, sending peer Mosaic (NYSE: MOS  ) soaring as well. But many investors are wondering whether this party has just started or whether the festivities are close to winding down. CAPS investors are still pouring drinks however, as more than 96% of the 1,241 investors rating Agrium remain bullish.

Looking higher
While Korean steel giant POSCO's agreement to a 200% increase in the price for coking coal has steel investors shrieking, those owning shares in mining companies Patriot Coal, Massey Energy, and Arch Coal are licking their coal-dusted chops.

After spinning off from Peabody Energy last November, Patriot Coal has seen its stock price soar thanks to strains in the global supply of coal. With mining equipment maker Joy Global stating that it thinks the gap between supply and demand could reach 60 million to 100 million tons this year, investors see coal producers in the catbird seat with pricing power. As such, a good majority of CAPS investors -- 380 of 395 rating Patriot Coal -- see it outperforming the market.

Looking highest
Topping our momentum list this week by a shy margin is oil refiner Western Refining, a stock that was falling precipitously not long ago. A dramatic cut in gross margins for a barrel of oil -- from $12.43 last year to $5.60 this year -- put a big dent in the company's bottom line.

But the rest of May was much kinder to Western Refining as the price of crude oil maintains high levels and stockpiles fall. Many CAPS investors see the volatility as an opportunity to pick up the refiner at a cheap earnings multiple of roughly seven. Overall, 94% of the 698 investors rating the company are bullish.

And you?
What's your story? Whether you buy the tale of a stock that's soaring or souring, your own research is more important than collective opinions. But these collective opinions can make your due diligence a whole lot easier.

Add your take on these or any of the 5,700 stocks that our 110,000-plus 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.

The Motley Fool Inside Value service looks for value in discarded shares of companies like Anheuser-Busch. To see what other companies the analyst team believes are priced below intrinsic value, take a free 30-day trial.

Fool contributor Dave Mock has his own story, but there's no "happily ever after" at the end of it. He owns no shares of companies mentioned here and is the author of The Qualcomm Equation. Anheuser-Busch is an Inside Value recommendation. The Fool's disclosure policy has the momentum of a freight train but can stop on a dime.


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