These Cold Stocks Are 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 has made that upward leap.

Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 165,000-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
If investor sentiment is correct, the paper products industry is about to burn up faster than flash paper. Last week, Weyerhaeuser (NYSE: WY) enjoyed growing confidence similar to what Boise is enjoying today.

And Boise doesn't have the same exposure to the moribund housing market as Weyerhaeuser does. While its rival will feel the impact on its bottom line, Boise can actually benefit. It can lower its input costs by buying logs from distressed sellers to manufacture wood chips, which it then uses to make its paper products.

In the quarterly results released just yesterday, Boise said it was able to boost revenues by raising prices, and while its input costs were higher this quarter, that was a result of greater production volumes. It wasn't the only one turning a profit; International Paper (NYSE: IP) said adjusted earnings came in twice what they were a year ago and were ahead of what analysts expected.

Highly rated CAPS All-Star Staka predicted earlier this year that Boise was an undervalued player in the industry that the market would catch up with:

Despite the recent run still only at tangible book value
Grossly undervalued relative to peers with comparativelly more debt like e.g. International Paper (IP)
Investor sentiment just turned seriously negative on the company (massive call selling), this on an uptrend is a bullish sign
- Debt, could become [critical] if credit crisis comes back quickly
- Risk of declining paper prices

Smoking gun
Keryx Biopharmaceuticals is waiting on phase 3 data for its lead drug candidate, perifosine, for treating colorectal cancer and multiple myeloma. The Food and Drug Administration recently granted the drug a fast-track designation, but we've noted before that's not always all it's cracked up to be. There's a long, sad history of drugs receiving fast-track status, only to come up empty (though it has also received a second orphan drug status on the therapy). If approved, it will be competing against generic alternatives from Bristol-Myers Squibb (NYSE: BMY).

So Keryx isn't just waiting around for good news. It has also started a phase 3 trial for Zerenex, a treatment for the side effects of kidney dialysis. CAPS member gontiveros likes the potential. "To many promising drugs in the pipe to not have a bullish opinion on Kerx and it's partner Aeterna Zentaris."

Tomorrow's big rig
Even with FDA approval, the results might not be all you thought they were going to be. Look at Somaxon Pharmaceuticals, which saw its stock skyrocket overnight when the FDA approved its insomnia drug, Silenor, only to watch as it gave back all the gains, and then some.

The problem for Somaxon is that there's a plethora of possibilities to help the 70 million adult Americans that the American Psychiatric Association says are afflicted by insomnia, including medicines from sanofi-aventis (NYSE: SNY) (Ambien), King Pharmaceuticals (Sonata), Sepracor (Lunesta), and Takeda (Rozerem). There are also natural products like valerian, kava, and chamomile. A cup of Celestial Seasonings Sleepytime tea may be just what you need for what ails you.

In CAPS, 90% of those rating Somaxon believe it will outperform the market. Put the rumors to bed on the Somaxon Pharmaceuticals CAPS page and let us know if you think this stock will keep you awake at night.

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.