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
Investors in medical device maker Delcath Systems got a rude awakening when the FDA sent a refuse-to-file letter regarding its chemotherapy system. The regulatory agency wants more information about inspections involving Delcath's manufacturing plant along with additional safety information, which it says it was already planning on filing.

Sometimes it seems FDA actions move in a faddish fashion. You suddenly get a bunch of similar actions by the agency, and the latest fad seems to be refuse-to-file letters; Gilead Sciences (Nasdaq: GILD) and Santarus (Nasdaq: SNTS) recently got them too. But the letters are better than the outright batch rejections received by obesity fighters Orexigen, VIVUS, and Arena.

The wildcard is the "statistical analysis clarification" the FDA is also seeking that could serve as a barrier to the chemotherapy system getting approved. Yet CAPS member searleg sees it ultimately making it through the gauntlet: "The PHP system they are developing will pass FDA approval and become the standard of care for organ chemotherapy treatment."

You can let us know on the Delcath Systems CAPS page whether the hurdle is set too high for it to make it over.

A glowing opportunity
Despite having fallen almost 40% from its recent highs, Magic Software Enterprises still trades for more than twice the price it did a year ago, initially driven higher by a third-quarter earnings report showing greater demand for its professional services and improved license sales of its uniPaaS platform. But despite fourth quarter results that showed revenue soaring 73% over the year-ago period and operating profits nearly doubling, the stock could not sustain the momentum.

While the financial sector comprises 45% of Magic's sales and 20% come from telecom, the benefit of Magic's integration software is that it can be used in any industry. It recently highlighted how a hearing instrument maker is using its iBolt platform to simplify the otherwise complex integration process between applications from salesforce.com (NYSE: CRM) and SAP.

katanabeach, who identified himself as being a 20-year veteran of developing Magic software, finds the company uniquely positioned to capitalize on the growth in cloud computing.

This stock is in the sweet spot of software development tools right now. Perfectly positioned for cloud application development. Cloud computing is a reality and a huge efficiency(cost reduction)platform for companies. Most apps will run in the cloud within just a few years. Thats a lot of work to be done. Magic will get its share.

You can follow along with Magic's progress by adding it to your watchlist.

Getting the urge
You can't talk about Paramount Gold & Silver without also mentioning Coeur D'Alene Mines (NYSE: CDE), as they are becoming joined at the hip with the former's claim of the discovery of an extension of the geological structure that has made the latter's Palmarejo mine so successful. Coeur D'Alene isn't particularly happy about it, saying that it's "aggressively addressing" the situation in order to defend its property rights.

But Paramount, which was previously thought of as primarily a gold play with a silver adjunct, is quickly turning into a prime silver play in its own right, particularly in light of the attractive value silver offers. Jim Cramer might have slammed the stock recently, but investors should thank him for giving them a discounted entry point. After the fall, Paramount has jumped up again more than 16% in price.

With 93% of the CAPS members rating the gold and silver miner to outperform the market, there's a general belief such as that held by BHatch13 that its updated numbers due out soon will be a powerful catalyst. Paramount may even become a takeover target, as notenoughmuny believes:

All drill holes are positive. Company Continue to indicate positive results, with all engaged projects. Expect it to be a takeover target, expect share price to rise to 12.00 and then again on takeover announcement.

You can keep track of Paramount's operations by adding the precious metals miner to the Fool's free portfolio tracker, and see how the situation with Coeur D'Alene Mines plays out.

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.