5 Cold Stocks Heating Up

When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.

Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 135,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence and see whether they're truly heating up -- or headed back to the deep freeze.

Source: Motley Fool CAPS as of Aug 6, 2009. EPS = earnings per share.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too. 

The sun's always shining somewhere
Indicating growing frustration, President Obama has vowed to push health-care reform through Congress, with or without Republican support. A House committee's passage of a sweeping reform bill that includes a public insurance plan caused shares of many health-care providers to turn tail. Hospital operator Tenet Healthcare bucked that trend, though, rising 3% this week. As a group, insurers retreated an average of 2.8%, but some fell further, like Amerigroup (NYSE:AGP), down 4% through Thursday's close.

Even if it has bipartisan support, Democrats will not have an easy task getting any form of nationalized health care past the public. Polls show Americans sharply divided on their support for these reform efforts. While a large majority think their own coverage is pretty good, a slimmer majority believe that changes to the system will increase costs. Only half of those responding think it will reduce their quality of care.

CAPS member Ewok82 believes investors' hopes for hospitals to profit from the reforms are misguided:

The Obama health care initiative has given hope to some of these hospital groups, but if the plan will really cut 2 trillion dollars from health care budget over the next few years, where do they think the cuts will come from? Do they think the hospitals will get paid more and everyone else will get paid less? Once the hype fades, "for-profit" hospitals will become the main targets of reimbursement cuts.

Go with the Flo
Flo is the bubbly checkout woman with the "tricked-out name tag" in the Progressive Insurance commercials. She's giving the company a face that consumers can identify with, like the gecko from Geico or the geeky phone guy from Verizon. Personalizing auto insurance has apparently helped, as Progressive reported a 16% increase in profits for the second quarter while its combined ratio dropped to 92.6%, from 93.6% a year ago. A ratio above 100 means an insurer is paying out more in claims and expenses than it generates from writing policies.

At 11 times next year's estimated earnings, though, that puts Progressive higher than Allstate (NYSE:ALL) and Travelers. CAPS member JakilaTheHunII said in late June that its strong financial foundation gives investors a reason to stake a claim, although better prices may still come:

The stock is currently selling at $14.50 and given [Progressive's] significant long-term advantages, it looks like a bargain for more conservative investors with a long-term timeframe. This is a nice position that appears to be undervalued, but that should continue to grow in the future. My only qualm is the one pointed out by SuperPicks --- [Progressive] seems expensive compared to some of its competitors. That [may] be good enough reason to stick around and see if one can get a better price. If it were to drop back to $12 or $10, it would be an absolute steal. All the same, this is not a bad pick-up at $14.50.

Shine your starlight
So are these stocks driving ahead or ready to crash? It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think are shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?