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 150,000-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 companies previously rated one or two stars, which 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
Oofa! While biotech XenoPort had lately been seeing its stars shine as CAPS members held out hope that its treatment for restless leg syndrome, Horizant, would receive FDA approval, we might expect to see them dim now that the FDA sent it and GlaxoSmithKline (NYSE:GSK) a rejection letter saying the therapy might be responsible for pancreatic tumors in rats. The stock took a nosedive, falling 66% on the news.

CAPS All-Star biotech guru zzlangerhans makes the case that not only does the extreme decline in the stock portend the potential to make a profit on a rebound, but that XenoPort will actually come out on the winning side of this seeming debacle:

The upshot of all this is that Xenoport has a strong chance for a comeback against this FDA concern, and will receive quite a lot of support here. Whether or not they are eventually successful, the magnitude of the destruction indicates a strong likelihood of rebound to at least the 12 level within the next few months. As a back-up plan, the company has several other prodrugs in early development and sufficient funds to progress them into late stage trials, although there is nothing tremendously exciting at this point. And finally, the company does have a patented and unique platform of prodrug technology that improves bioavailability of medications utilizing nutrient transporters in the GI tract. This is a substantial asset that may eventually make them a buyout candidate should they accept that route.

Of the nearly 200 CAPS members who have rated the biotech, 85% peg it to outperform the market. Join them on the XenoPort CAPS page and give us your views on its future.

Building a support structure
Despite worries that health insurers like UnitedHealth Group (NYSE:UNH) and Aetna will spark a wave of insurers deeming NuVasive's minimally invasive spinal-surgery procedure "experimental," the medical-device maker says it expects to report a full-year profit when it releases earnings later this week. Shares of NuVasive have dropped by 25% over the past three months.

Instead of making a large incision in the back to operate on the spine, surgeons using NuVasive's XLIF technique make small incisions on the side. By labeling the procedure as experimental, insurers won't reimburse surgeons who perform it. NuVasive says surgeons can still get reimbursed at local and regional levels, and it is negotiating with insurers to have the decision reversed. Even so, it anticipates reporting revenue of $370 million for 2009, and generating as much as $500 million in sales for the coming year.

CAPS member FinanceGuy58 sees the concerns about reimbursements as much ado about nothing:

Stock being hammered by short speculation and concerns over reimbursement. I think the concerns are overblown and this could be an easy double.

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