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 170,000-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
Even in the face of a 35% haircut, CAPS members are still confident ImmunoGen will go on to outperform the market. While the stock price may jump around, its CAPS rating has held steady.

As is now known, ImmunoGen's partner Roche got dissed by the FDA when the agency wouldn't even bother to review its accelerated approval application for trastuzumab-DM1 (T-DM1) because the agency says Roche didn't test the cancer drug in the right population of patients. The "refuse to file" letter really smacked ImmunoGen, though, since it was set to receive royalties and milestone payments if T-DM1 won approval.

But that seems to be the key investment driver here. The drug wasn't rejected and by all accounts seems to be effective at what it does. It just has to go through the proper testing procedures, something it would have had to do anyway. The submission is just put off to around 2012, during which time it will be tested against a combination of Roche's Xeloda and GlaxoSmithKline's Tykerb.

Considering there are other drugs in its pipeline, too (though currently nothing on the market), CAPS member DiversifiedFocus seems correct in his assumption that at current valuations, ImmunoGen's potential looks attractive: "FDA surprised everyone with that call, but phase 3 trials are under way and the company looks attractive at the present price."

A clear road ahead
There also seems to be great potential in Luminex, whose stock is off 12% so far this year. It's been signing deals with the likes of Northrop Grumman to create next-generation autonomous biodetectors that warn of possible airborne biohazards, and its new MAGPIX analytical instrument is said to provide accurate results at half the cost of current systems.

Luminex develops, manufactures, and markets proprietary biological testing technologies based on its open-architecture xMAP technology that enables fast and cost-effective bioassays. More than 6,700 xMAP instruments have been sold worldwide and generated $26 million in sales last year, up 13% from the year-ago period.

Yet genomic and protein testing is a big business (Luminex estimated it was $45 billion in 2008 and growing 6% annually), and Affymax (Nasdaq: AFFY), Becton, Dickinson, and Sequenom (Nasdaq: SQNM) are all targeting the niche. The MAGPIX technology could give it a leg up on the competition, but with just two customers accounting for more than a quarter of all revenues, there is some concentration risk here.

CAPS member JPG101 says its customer list still provides Luminex with a unique competitive edge.

A small company with a market cap bellow 1 billion who sits at the center of an industry with its flow cytometry patents and technology. The list of their partners is truely impressive. This is a platform technology company who licences its tech to so many companies that it's difficult to keep track. Luminex is extremely well positioned to ride the wave of diagnostic upgrades that our medical system will eventually need to do. Many of the clinical tests we do are time consuming, labour intensive and slow.

Golden globes
With the Federal Reserve indicating its willingness to breach the dam and let the really easy money flow, gold prices are hitting new records daily and are bearing down on $1,300 an ounce. Gold bugs have been saying all along that with governments around the globe spending money as fast as they could to stimulate local economies, inflationary pressures are building. Peter Schiff's prediction for gold at $5,000 an ounce may yet come true.

While you'd expect gold miners like Goldcorp (NYSE: GG) and Yamana Gold (NYSE: AUY) to see their shares soar, smaller outfits like US Gold are benefitting, too, even though they're nothing more than exploration outfits. Indeed, US Gold has possibly more potential with its Mexican silver mine than it does with its Nevada gold prospects though neither has produced an ounce of metal yet that puts revenues on its financial statements.

Highly rated CAPS All-Star DarthMaul09 admits an investment in US Gold is risky, but is still likely to benefit from soaring gold prices.

A bit speculative in that it has already had a great run, but the eventual break out of gold to 1280 and higher may be only a short time away. Many of these miners will likely benefit greatly from the rise in the gold price and the eventual weakening of the US dollar.

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.