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
Earnings are due out for Avanir Pharmaceuticals next week, and although its treatment for pseudobulbar affect Nuedexta has been on the market for less than a full quarter, investors will get a quick peek at least of how the drug is likely to play out in future quarters.

There's no competition in treating the illness, which is a sudden, uncontrollable onset of laughing or crying, but analysts expect that Avanir can generate more than $500 million domestically in peak revenues for the therapy. I've speculated previously that Novartis (NYSE: NVS) makes a good candidate to buy the pharmaceutical because of its focus on CNS disorders, but a more near-term catalyst for sending the shares soaring could actually be a short squeeze: More than 31% of Avanir's float is sold short. One bit of good news -- oh, like the upcoming earnings report -- could send the shorts into a tizzy.

Regardless, CAPS member thundiyi believes Avanir will enjoy a honeymoon period with Nuedexta, which should help propel the stock higher.

The projected sales for the drug in two years is $475M. They hired an experienced sales team that has experience with the prescribing doctors. The patients that have received the drug have been satisfied to rid themselves of laughing and crying fits, so much so that they are telling other individuals with ms/als and the Doctor's are telling other doctors. Right now it seems everyone loves this drug.

You can continue to diagnose whether this is a good problem to have on the Avanir Pharmaceuticals CAPS page.

Something to nosh on
Connectivity will be a key driver for the consumer electronics market, and it's leading investors to believe Entropic Communications is set for a big leap forward. It recently reported a more than 90% increase in revenues year over year, on the strength of continued expansion of the connected home entertainment market. The recent earnings weakness rival Broadcom (Nasdaq: BRCM) displayed could give Entropic a bigger opportunity.

The difference between the two is significant. Broadcom's results were low because Nokia (NYSE: NOK) appears to be a fading cellphone story. Entropic enables the delivery of multiple streams of HD video and other multimedia content throughout the home as it is cozying up to service providers like Verizon and DIRECTV as well as OEMs like Motorola, which accounted for 17% of its revenues in 2010.

While there's some buzz that it may be a takeover candidate, Entropic looks well enough to continue on its own. Wall Street agrees, with all nine analysts covering it seeing it outperform the indexes, while 86% of the CAPS members rating it think it will, too.

Stay connected to developments by adding Entropic to your watchlist.

Getting the urge
The rising price of gas should provide some motivation for alternative fuel purveyors to get their product to market more quickly. While some people would prefer to attack ExxonMobil (NYSE: XOM) and Chevron for their profits, folks would do well to look at how they can benefit from the situation. Alternative fuels players such as Rentech and Clean Energy Fuels may provide a solution.

Rentech has several projects being developed for the production of fuel or power. It's in the process of trying to secure a Department of Energy loan to develop a biomass gasifier plant to produce renewable power as well as a synthetic fuels project that will produce either jet fuel or diesel, depending on which commands the highest value.

CAPS member khomeboy sees an opportunity for alternative energy sources as Middle East unrest continues to create uncertainty for traditional sources of fossil fuels.

Middle East turmoil make alt fuels attractive. Also, if larger oil companies see opportunity, they may make a run at small independents...military is also looking at alt fuel should supplies be limited and of course there is the Green movement that could support some upward pricing. I am buying and holding...

You can also share your thoughts on whether it will be the fuel of the future on the Rentech CAPS page.

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.