5 All-Star Stocks on Fire

The clock's ticking down, your team's down one, you're being double-teamed, and you wouldn't have enough time to get off a good shot even if you were allowed to drop-kick both defenders. So who do you dish the rock to?

Your first thought might be the resident superstar -- the Kobe Bryant or LeBron James. But what if Kobe, as good as Kobe is, is playing colder than an Alaskan snowdrift? That's right, you dish to the guy with the hot hand, the guy who will be deemed en fuego tomorrow on ESPN.

Momentum investors are looking for stocks in a similar state of sizzle when they make investments. They want to give the nod to the stocks that are hot to the touch.

But momentum by itself will only get you so far. What sounds more interesting to me than simply looking for stocks that have momentum is finding high-quality stocks that also have some positive inertia on their side. It's like kicking the ball out to Michael Jordan or Larry Bird when they do have a hot hand.

To find these high-quality winners, I cross-referenced a pretty simple momentum screen with data from The Motley Fool's new investing community, CAPS. The result is a starting lineup of all-star stocks that all currently have a fiery shooting hand. Each of the companies below is up 30% or more over the past year, is within 5% of its 52-week high, and has been rated highly by CAPS players.

At first glance, this sure looks like a high-quality group. But, as always, I highly advise taking a close look before you throw a bounce pass in the direction of any of these stocks.

Topping the quadrant
In my former life as an investment banker, the bank I worked for subscribed to research content from Gartner (NYSE:IT). Being an information addict, I loved reading through many of the Gartner reports, but my favorite type of report was "The Magic Quadrant." In this report, they give a great overview of a particular industry in the form of a tidy box, with the companies in the industry grouped into four quadrants.

The recent inclusion of EMC in the "leaders" quadrant of Gartner's Magic Quadrant for content management is very telling as to why the company, and the stock, has been doing so well. Over the past few years, EMC has had the foresight to transform itself from a relatively unattractive hardware-centric business that was beaten up badly by the bursting of the Internet bubble, to a much more attractive software-centric business providing essential and differentiated products to its customers.

Of course, seeing that information management software was the way to go is one thing; actually executing quickly enough to have a jump on everybody else is another. EMC was able to do the latter by confidently moving forward and making three major acquisitions -- Documentum, Legato Systems, and VMware (NYSE:VMW) -- in 2003 and early 2004. Though EMC has since sold part of its stake in VMware, it is benefiting in a big way from the public market valuation of the company, since it still owns 86%.

But now that EMC is up more than 450% from its 2002 lows, the question might be whether there is still good reason to be a buyer. On CAPS, 1,417 players seem to think there is a good reason to buy, versus just 85 who think the stock will underperform. Of the commentary on CAPS about EMC, the most common thread is that the big ownership stake it has in VMware makes it a great bet.

So does EMC deserve a place on your All-Star team? You can share your thoughts -- or check out more of what your fellow Fools have to say about it, or any of the other stocks above -- by stopping by CAPS. And while you're there, you can also take a peek at a few more of the 5,000 other rated stocks.

I think I heard a "booyah" somewhere out there - thanks, Stuart Scott!

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