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 145,000-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.

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. 

Caution: Contents may be hot
Is it a sign of genius or megalomania when investors style themselves after Warren Buffett? It's still not clear whether Sears Holdings (NASDAQ:SHLD) chairman Eddie Lampert will ever be able to transform his diverse holdings into a unified whole, like the Oracle did. (In fairness, that goal may not be impossible; many investors think of specialty insurer Markel as a fairly successful mini-Berkshire Hathaway.)

With the jury out on Lampert, Steak n Shake investors might want to view chairman Sardar Biglari's move to fashion the restaurant chain into a holding company of sorts with a bit of skepticism. His recent acquisition of an insurance company may strike parallels with Buffett's purchase of GEICO, but it also makes a perfect fit with Peter Lynch's definition of deworsification.

CAPS members are buying into the expansion, however; gpiazzolla thinks Biglari may just be synonymous with Buffett. All-Star member Drew2142 isn't disagreeing, figuring that Biglari may add a lot of quality companies to the portfolio:

"In Sardar we trust". He is a bad man, and this company is going to be so strong 5 years from now. It’s exciting to watch what's happened over the last year just in the turn-around efforts. The annual report says it all, and it says it in plain english. I will be adding to my positions every chance I get. As I'm sure Sardar is adding to his/ours... hence the companies he continues to go after.

Is this move more Buffett than buffoon? Show your own spark of genius by posting your opinion on the Steak n Shake CAPS page.

Revenge is best served cold
In the hoopla surrounding Microsoft's (NASDAQ:MSFT) announcement yesterday that it sold 60 million licenses of Windows 7, it was easy to forget that Red Hat continues to chug along with healthy sales of Linux software. No less importantly, the company has embraced cloud computing and begun developing its own virtualization platform.

CAPS member youngblood58 pointed out late last year that the current shift toward Linux in IT spending could fuel Red Hat's growth:

Not only is open source the new IT model for both businesses and individuals, cloud computing is the future-coming-to-pass and Red Hat is positioned to benefit.

They are trading near their 52-week high, but I think the shift in IT spending/investment will favor companies like Red Hat in the next few years.

Why not tip your hat on the Red Hat CAPS page? Tell us whether you think the company deserves to walk around with its head in the clouds.

Checking the mercury
Are these stocks invitingly warm, or bitterly frosty? It pays to start your research with 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 hot little numbers, and which offer cold comfort. It's free to sign up.