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, shares of Corporate Express surged 39% in a single day, after rumors were confirmed that Staples (NASDAQ:SPLS) had merger eyes for the company back in February. Shares of Corporate Express are now worth approximately twice their pre-buyout value as Staples continues to chase the company.

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 105,000 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 20% 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:

Return data is calculated as the difference between the closing price on May 5 and the closing price on June 2. Star rankings from CAPS.

With our list of screened stocks pulled up in CAPS, it only takes a single click on individual companies to get some context for the recent momentum.

Go west, young investor
Sometimes the market tends to leave old names behind and forget about them for a while -- until the company shows growth numbers that are hard to miss. Hard-drive maker Western Digital had its heyday in the mid-1990s as the Internet craze was grabbing hold, but had gone dormant in the growth category until the past few years.

Lately, shares have been on fire as the company has consistently beat Wall Street’s expectations and grown cash flow while maintaining a low earnings multiple. Once thought to be doomed as solid-state drives take center stage in memory storage applications, Western Digital continues to find demand for high-capacity drives in media products such as DVRs and notebook computers.

Obviously, things are going well if you can string together EPS growth of more than 50% over the past three years, as Western Digital has. The company is even gaining market share from leader Seagate by beating it to the punch with high-capacity drives for notebooks and aggressive pricing. With its current earnings multiple still less than 10, more than a few investors think Western Digital is set to take off -- even after doubling in the past year. Nearly 95% of the 759 investors currently rating the company in CAPS agree and believe Western Digital will outperform the market in the future.

Black hawk up
Some company names appeal to the emotional investor in me -- and I'm sure there's a madness to the method. The name Petrohawk brings to mind a feared and stealthy predator of hidden petroleum products. As far as I know, few hawks die from starvation -- they get what they go after. And oil and gas developer Petrohawk lives up to its name; the company delivers significant increases in production rates while dropping drilling costs down to some of the lowest in the industry.

But there's been talk of the hunter being hunted -- Petrohawk is seen as a potential acquisition target by Chesapeake Energy (NYSE:CHK) as the latter company is growing its attractive Haynesville Shale acreage. Even a $500 million private senior note placement announced with the recent earnings hasn't dampened investors' mood much, as increasing oil reserves in Louisiana and Arkansas keep analysts in buy mode.

CAPS investors are swooping in and saying "buy" as well. With nearly 98% of the 618 CAPS investors rating Petrohawk currently bullish, there are precious few detractors out there arguing that the company will not continue to outperform the broader market.

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 on any of the 5,600 stocks that our 105,000-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.