More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, headlines and ticker feeds tout soaring stocks. Some juicy rumor or biotech wonder drug seems to be reason enough for a stock to climb 10%, 25%, even 50% -- sometimes in a single day. Sometimes, the companies are familiar, but many are names and stories entirely unknown to investors.

Often, news of a buyout offer that investors didn't anticipate sends a stock rocketing. The $6.1 billion in cash that private equity funds associated with Fortress Investment Group (NYSE:FIG) offered to purchase Penn National Gaming (NASDAQ:PENN) caused its stock to jump more than 20% in a single day. But beyond these somewhat unpredictable surges, there are stocks out there with a fundamentally compelling story behind their recent momentum. The difficulty comes in sifting through the daily trading and news-driven gyrations to find them.

Luckily, there's help right at your fingertips. Motley Fool CAPS is a great tool not only for finding and screening stocks, but also for getting a quick read on the fundamental stories behind them. In addition, investors can quickly see just who -- from the big names on Wall Street that we track to the regular Joes on Main Street -- is bullish or bearish on the company, and why.

The story behind the story
Let's dig right in, using the collective wisdom of more than 60,000 CAPS investors to look past the splashy news and find companies showing strong recent momentum.

We'll screen for stocks showing at least 30% price appreciation in the past month. Then we'll weed out stocks with less than a $100 million market capitalization and those with a beta greater than 3. This will help keep us out of the wild, pump-and-dump land of penny stocks. Here, then, is a broad sampling of stocks that our screen returned today.

Now let's sift further through this list of stocks that have thumped the market over the past month, and find out why they've performed so well.

The method behind the madness
CAPS contains a searchable record of investors' opinions and comments about a company's fundamentals, value, and prospects at any given time. Users can see what other investors were saying about a company before a huge surge in price, and whether those investors still favor it after the run-up. A company's star ranking also has a history, showing whether that company has been rising or falling in the investing community's favor.

Lest you think that keying off CAPS ranks is equivalent to following a crowd of lemmings, note that the CAPS system weighs the opinions of the best-performing investors more heavily than those who haven't done so well. Thus, a company's ranking is influenced more strongly by investors who have already proved themselves better than the average dart-throwing monkey.

Tracking momentum
One of the biggest gainers on our momentum list is digital mapping data provider and Motley Fool Stock Advisor selection Navteq. The five-star company has seen shares soar almost 50% in the last month, spurred not by an offer to acquire the company itself, but by an acquisition of its prime competitor Tele Atlas. Handheld GPS maker TomTom announced a few weeks ago that it plans to snap up Tele Atlas at a premium for $2.8 billion, fueling speculation that Navteq may be next. Industry analysts also reasoned that pricing pressures on Navteq could relax somewhat if its primary competition were swallowed by a company higher on the food chain.

But speculation about a deal wasn't the only high point on Navteq's map. A blockbuster second-quarter earnings report gave shares a boost as well. The company experienced strong demand for its maps in portable devices such as personal navigation devices (PNDs) and cell phones. Additionally, a strong euro and lower expenses gave a boost to the bottom line. The "off-the-charts" results validated the confidence that many CAPS players hold in Navteq, with virtually 99% of CAPS All-Stars giving the stock the thumbs up.  

Joining the upper Echelon
In a world going increasingly green, a company like Echelon gets plenty of attention. The company's networking products help consumers and businesses cut energy costs by monitoring and gathering data on power usage. Since reducing demand is one of the most direct approaches to helping alleviate rising energy concerns -- and the fact that it can cut utility bills by 20% to 30% in some cases -- Echelon's technology is in the spotlight for many investors.

Echelon has been getting plenty of exposure lately, too. The firm recently had U.N. Secretary-General Ban Ki-Moon and California Governor Arnold Schwarzenegger tour its facilities and make publicity statements about the company's key role in producing technology that fights global warming. This follows from a deal with McDonald's (NYSE:MCD) announced last month to outfit restaurant kitchens with Echelon's power-line networking solution.

But as an investment, some CAPS players are concerned about the company's profitability -- or lack of profitability, to be more specific. While 83 of 94 players favor the company to beat the market going forward, a few believe there's too much hype and too little substance built into shares. For certain, an investment in the $1.1 billion company is not based upon cash flows or current fundamentals -- it's about hope that one day its products will become standard around the world.

What's your story?
Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or souring stock, your own research is more important than collective opinions. But thankfully, these collective opinions make an individual's job of due diligence much easier.

So, step right up and chime in with your own take on these or any of the more than 4,900 stocks that investors have covered in Motley Fool CAPS. It's totally free to be a part of this story, and the payback is more than worth it.

Vertex Pharmaceutical has returned more than 265% since it was initially recommended in the Motley Fool Rule Breakers newsletter service in February 2005. To see what selections David Gardner is making today, take a free 30-day trial.

Fool contributor Dave Mock has his own story, but he won't bore you with the details. He owns no shares of the companies mentioned here. Dave is the author of The Qualcomm Equation. Navteq is a Stock Advisor pick. The Fool's disclosure policy has the momentum of a freight train but can stop on a dime.