5 All-Star Stocks on Fire

When the clock's ticking down and the game's on the line, which of your teammates do you trust to sink a winning shot? Sure, you could dish the rock to your resident superstar -- but what if he's playing ice-cold at the moment? So instead, you pass to the guy with the hot hand, the one who'll be deemed en fuego tomorrow on ESPN.

Momentum investors are looking for stocks in a similar state of sizzle. But momentum by itself will only get you so far. I prefer to find high-quality stocks that also have some positive inertia on their side. It's like kicking the ball out to your team's superstars when they do have a hot hand.

To find these league-leading winners, I cross-referenced a simple momentum screen with data from The Motley Fool's CAPS investing community. Each of the companies below is up 30% or more over the past year, now trades within 5% of its 52-week high, and has been rated highly by CAPS players.

Sources: Yahoo! Finance; Capital IQ, a division of Standard & Poor's; and CAPS as of Aug. 12.

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.

Riding high on the rails
Manufacturers these days are increasingly choosing trains as a way to get their goods from the factory to the customers. But it’s not because train travel is so romantic; rising gas prices have made moving goods by truck more expensive, and so manufacturers and sellers of all kinds of goods are turning to the likes of Norfolk Southern, CSX (NYSE:CSX), Union Pacific (NYSE:UNP), and Motley Fool Hidden Gems pick Genesee & Wyoming to ship their wares.

Though Norfolk and G&W cover different parts of the rail industry -- Norfolk is a class I operator with 21,000 miles of rail, while G&W is a regional operator -- the most recent quarter was a good one for both. A weak housing market and a softening economy hurt the overall volume of goods that the rails were shipping, but increasing demand has pushed up the price per load and more than offset the volume declines.

Norfolk's total revenue increased 16% year over year, while pre-tax profit gained an even more impressive 22%. G&W saw an even more robust 22% top-line gain, and pre-tax profit was up 25%. G&W, however, took in only a bit more than it did last year after taxes. This was because of the recent expiration of the short-line tax credit, which bumped the company's tax rate from 27% to almost 40%.

Good quarter aside, at this point investors need to ask themselves how much more room these railroad stocks have to run. Most CAPS members think there's enough juice left to allow all four of the stocks I mentioned above to outperform the S&P 500 index. A whopping 98% of the 866 members that have rated Genesee & Wyoming have been bullish on it. One of these G&W fans, CAPS All-Star deuspecuniae, made a pitch back in April stating that not only will high oil prices help railroads, but so will the potential for recession:

Upward pressure on oil will continue to fuel the railroad sector's continued climb this summer, and the upcoming confirmation of an American recession this summer along with a continuation of the dollars fall here at home will only accelerate the integration of business and railroad to offset higher energy prices.

I'm a bit less sanguine at this point. Oil has recently been falling, and it's unclear whether this is a correction or the popping of a bubble. At the same time, it's questionable just how long the railroads can continue to make up for falling volumes through raising prices. All that would be fine if we could buy the rail stocks at relatively low valuations, but G&W is trading at almost 26 times estimated 2008 earnings -- a valuation that doesn't leave a whole lot of room for error.

Fielding your team
So do you think any (or all!) of these companies deserve a place on your All-Star team? You can share your thoughts on them, or check out more of what your fellow Fools had to say, by stopping by CAPS. And while you're there, you can take a peek at a few more of the 5,500-plus other rated stocks.

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

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