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's 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; NA = not available.

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
Optimists are ever hopeful that natural gas prices will once again recover as we move toward the fall and winter heating seasons. Temperatures so far have been mild and have kept prices low, and considering the vast supplies still held in inventory, there's no sign of a let up. Atlas Pipeline Partners (NYSE: APL), for example, is poised to dominate production in the Marcellus shale formation. Non-stop production is causing some natural gas companies like SandRidge Energy (NYSE: SD) to diversify its operations into oil, even as it causes some short-term pain.

Natural gas utility Atmos Energy uses hedging strategies to try and account for prices, but the back half of its year typically results in losses because of warmer weather. Such was the case in the third quarter where hedging and investment impacts contributed to a $0.03 per share loss, but its core operations topped expectations.

After a series of home explosions over a several-year time span, Atmos will be replacing its aging steel service pipelines with newer plastic ones. The first stage will be to replace 100,000 of the riskiest lines within the next two years with another 350,000 lines to eventually be replaced thereafter. The project will be funded, possibly over a period of decades, with fees totaling at least $3.4 million annually.

87% of the CAPS members rating the utility apparently understand the benefits that accrue to being a regulated utility and have marked it to outperform. With summer fading and the heating season approaching, tell us on the Atmos Energy CAPS page whether you think investors should hedge their own bets here.

You can bank on it
It was rate increases that allowed Florida utility TECO Energy to post a 24% jump in profits last quarter. It benefited from the warmer weather that socks nat gas utilities as people crank up the A/C. It figures that with the higher rates it was allowed to impose on its customers, its Tampa Electric subsidiary scored as much as $17 million in additional revenues.

However, the demand for metallurgical coal that is pushing Alpha Natural Resources (NYSE: ANR) higher is also having a beneficial impact on TECO's coal subsidiary. It now expects to sell 9 million tons compared to the previous range of 8.3 to 8.7 million tons. The average sales price per ton is also expected to be higher, now at $77, as opposed to the $75 per ton it predicted previously.

CAPS member Suropej finds TECO Energy is one company that can properly be said to be firing on all cylinders: "TECO Energy, Inc. has a solid customer base and diversified holdings that give it a broad and stable foundation to continue earning into the future."

When it rains, it pours
Generic version of Flomax, a treatment for enlarged prostates, has allowed specialty pharmaceutical Impax Laboratories to go with the flow, accounting for two-thirds of its increase in revenue last quarter when it had an eight-week window of exclusivity to market the drug. Generic Adderall has been a consistent contributor as well putting it in a position to soar in the months ahead.

Now the generic drug maker wants to go after Vytorin, the high cholesterol treatment from Schering Plough. For the 12 months ending in June, it's estimated Merck (NYSE: MRK), which now owns Schering, generated $222 million in sales. Schering has sued Impax for patent infringement after the generics company notified it of its application filing with the FDA.

CAPS member sarre9 thinks Impax Laboratories has plenty of irons in the fire to keep its revenues rising regardless.

As of 1Q10, [Impax] has zero debt, over 130M cash in hand, 52 products in pipeline, 42 marketed ANDAs with another 32 pending at the FDA. Two NDAs for Parkinson's ongoing. Plus 4Q sales appear to ramp up each year.

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.