More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, we see headlines and ticker feeds touting 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 entirely unknown to investors.

Often, news of a recent buyout offer that investors didn't anticipate sends a stock soaring. Microsoft's (NASDAQ:MSFT) $6 billion offer for Motley Fool Rule Breakers pick aQuantive (NASDAQ:AQNT) caused the stock to nearly double in a single day. But beyond these somewhat unpredictable surges, there are stocks out there with a fundamentally compelling story 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. The Motley Fool CAPS system is a great tool not only for finding and screening stocks, but also for getting a quick read on the fundamental story behind a company. In addition, investors can quickly see just who -- from the big names on Wall Street to the regular Joes on Main Street -- is bullish or bearish on the company, and why.

The story behind the story
Let's dig right in, using the collective wisdom of more than 29,000 CAPS investors to look past the splashy news and find companies showing strong recent momentum.

We'll screen for stocks showing at least 30% price appreciation in the past month. Then we'll weed out stocks with less than $100 million market capitalization, and those with a beta greater than 3. This will help keep us out of the wild, pump-and-dump land of penny stocks. Here's a broad sampling of stocks that our screen returned today:

Now 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
One advantage of CAPS is that it contains a searchable record of investors' opinions and comments about a company's fundamentals, value, and prospects at any given time. Users can see what other investors were saying about a company before a huge surge in price, and whether as many still favor it after the run-up. A company's star ranking also has a history, showing whether a company has been rising or falling in favor with the investing community.

And lest you think keying off CAPS ranks is equivalent to following a crowd of lemmings, note that the CAPS system weights the opinions of the best-performing investors more heavily than those who haven't done so well. Thus, a company's ranking is influenced more strongly by investors who have already proven better than the average dart-throwing monkey.

In looking at the biggest gainer on our list, Fremont General, we see a beaten-down company that has seemingly bounced higher than any dead cat I know. But there's a reason here -- the company announced it was selling off its commercial real estate lending portfolio in an effort to rebuild its ailing loan business. The company had been under intense scrutiny for high default rates on subprime loans, and the announcement of significant restructuring was music to investors' ears. While there's still plenty of dissent to be seen in the stock's bottom-dwelling one-star CAPS rating, many top players believe that the company retains underlying value -- even after this month's dramatic rise.

Color Kinetics is a very different story -- a growth stock with a (potentially) long runway in front of it. The company develops light-emitting diode (LED) technology, selling advanced lighting systems and services around the world. Far from a beaten-down value play, Color Kinetics is all about future growth, hinging on just how pervasive LED technology will become in traditional lighting systems. Even with the run-up and concerns about a rich valuation, CAPS investors still give the company four stars, with 87 of 89 All-Stars betting that the company will outperform the S&P going forward.

Another highly favored highflier on our list is Foster Wheeler, a company that designs and builds infrastructure for oil, gas, and power facilities. The company has been singled out by the CAPS community as a strong player, with leading technology that's in demand around the world. The trend for energy demand in emerging markets, and Foster Wheeler's ability to provide it, are a recipe for success in the minds of 227 of the 237 investors who've rated the firm in CAPS.

What's your story?
Ultimately, the only story that counts is your own. Whether or not you buy the story of a soaring or souring stock, your own research is more important than collective opinions. But thankfully, these collective opinions make an individual's job of due diligence much easier.

So step right up and chime in with your own opinion on these or any of the more than 4,600 stocks covered in Motley Fool CAPS. It's totally free to be a part of this story, but the payback is more than worth it.

Color Kinetics is one of many stocks tagged in CAPS for close scrutiny in the Rule Breaker Universe. To learn more, take a free 30-day trial of the Motley Fool Rule Breakers service.  

Fool contributor Dave Mock has his own story, but won't bore you with the details. He owns no shares of companies mentioned here. aQuantive is a Rule Breakers recommendation. Microsoft is an Inside Value pick. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy has the momentum of a freight train, but can stop on a dime.