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 180,000-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 low-rated companies that have recently enjoyed a bump in investor confidence to the top tiers and see whether they're truly heating up -- or headed back to the deep freeze.
CAPS Rating (out of 5)
EPS Growth Next Year
ARMOUR Residential REIT
United Parcel Service
Source: Motley Fool CAPS; Yahoo! Finance.
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
The housing industry offered up some conflicting news last week that would ultimately impact growth prospects for mortgage REITS like ARMOUR Residential REIT and American Capital Agency.
The National Association of Realtors 'fessed up they had been double-counting home sales for the past four years, so their numbers had to be revised downward 14%, indicating the market was not as strong (relatively speaking) as the real estate mouthpiece had been suggesting. On the other hand, new housing starts rose to their highest level in a year, jumping 9.3% in November, and perhaps marking the beginning of the turnaround for which the industry has been desperately waiting.
Not all REITs are created equal, with some like Annaly Capital Management
As economic crises spread across Europe, protracted joblessness remains entrenched here, and malaise everywhere is a concern, a further collapse of the yield curve or spread is likely to impact such leveraged mREITs more acutely. Still, with the government backstop, risks remain low.
Newcastle Investment is something of a different animal than those above because it also invests in commercial real estate, so it's not as tied to the housing market. Not that the CRE market is any great shakes; yet as Greenwichadvisor notes, most of Newcastle's investments are in non-recourse CDOs, making sifting through its financial statements more difficult.
It is hard to tell what the leverage is for NCT. They account for their investments where the write down all assets to market and report all debt at face value. During the financial crisis they wrote a lot of assets to zero to 10 cents. They cannot write a lot of this back up due to accounting. In addition, a majority of their assets are held in CDO's that are non recourse to NCT but they are required to consolidate them. Therefore, the balance sheet is of very limited use in understanding NCT.
A painful realization
With the United States Postal Service facing a $14 billion deficit, it's not hard to see why investors might think United Parcel Service and FedEx
Moreover, comScore says online Christmas shopping is sizzling this year, up 15% from last year. While some retailers like Best Buy
CAPS member busterjde sees the two private delivery services winning from the post office's loss: "Americans will have to turn to companies like UPS and Fed Ex to pick up the slack left by the hefty cuts being made by the United States Postal Service."
Add UPS to the Fool's free portfolio tracker to keep track of its progress like a shipment from the North Pole, and let us know on the UPS CAPS page whether you think it will deliver the goods for investors.
Checking the mercury
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Fool contributor Rich Duprey owns shares of Best Buy, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of FedEx, Chimera Investment, Best Buy, and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Annaly Capital Management and FedEx. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.