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
Will we ever see a decent weight loss drug make it to market? Arena Pharmaceuticals, Orexigen Therapeutics, and VIVUS (Nasdaq: VVUS) were decimated by the FDA's squashing their treatments approval requests. And though investors gave up on them in droves, sending their stocks plummeting, each has remained in business looking for a way to circumvent the harsh critiques the regulatory body leveled.

VIVUS, for example, is looking to have Qnexa approved for males and females who can't have children, getting around the problem of potential harm to babies. Orexigen and its partner Takeda Pharmaceuticals will be meeting with the FDA to discuss potential heart risks. Arena is conducting a new three-month test on locaserin with Eisai. Whether any of these will be enough to surmount FDA objections remains to be seen.

Highly rated CAPS All-Star zzlangerhans doesn't see much hope for locaserin, but thinks trades will pile back into the stock.

Arena's share price has slid below my green thumb threshold of 1.4, and I don't believe the volatility in the stock is played out. There is still a lot of speculative energy left and I think many traders will be eager to pile back into the stock before a possible lorcaserin resubmission around the end of 2011. The long-term prospects for lorcaserin approval remain extremely dim, so this green thumb represents more of a psychoanalysis of Areniacs than any confidence in the company.

You can continue to diagnose whether this is a good development on the Arena Pharmaceuticals CAPS page.

Something to nosh on
You may have heard the phrase "April showers bring May flowers," but it's apparently news to management at closeout retailer Big Lots, which reported first quarter same store sales fell because of bad weather. Although it's given back some of its gains, Big Lots has been propped up on rumors that it might be the target of a buyout by private equity.

Dollar General returned to the public markets in 2009 after having spent time cloistered away in private equity's portfolio. While closeouts are a specialized niche -- Overstock.com (Nasdaq: OSTK) plays it as an online choice -- the sector still feels pressure from traditional deep discounters, whether its other dollar stores like Dollar Tree or even Wal-Mart (NYSE: WMT).

Despite all the happy talk of a recovering economy, unemployment jumped back up to 9% meaning there are still plenty of people hurting and looking for a good deal. That probably explains with 81% of the CAPS members rating Big Lots think it will outperform the broad market averages. Add the closeout retailer to your watchlist to see if it's still a big deal.

Getting the urge
Invesgtors like CAPS member imshirazy think the important cancer research YM Biosciences has been doing opens it up to be a leading contender to be acquired.

Fantastic stock with promising upside potential. The number of institutional holdings has increased dramatically. Promising drugs with upcoming PIII trials opens potential for merger (although unsure if YM wants this).

Treating patients with myelofibrosis is a slightly crowded field, with Onyx Pharmaceuticals, sanofi-aventis, Novartis, and Incyte (Nasdaq: INCY) all competing in the space. Combining talents and technologies may just be an avenue someone wants to pursue to get to the head of the pack.

Certainly the markets have been giving YM the inside track as its stock has more than doubled over the past six months. Reporting positive data on its JAK1/JAK2 inhibitor CYT387 doesn't hurt at all.

Head over to the YM Biosciences CAPS page and don't be inhibited about sharing your opinions on its prospects.

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.