More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news and other short-term forces can send individual stocks up by 10%, 25%, even 50%.

For example, shares of Wells Fargo (NYSE:WFC) rose more than 30% last Wednesday when it announced higher than expected second-quarter earnings and a higher dividend.

Events such as that one are less predictable than finding stocks with fundamentally compelling reasons for recent momentum. The trick is, of course, knowing where to look. That's where Motley Fool CAPS comes in.

The story behind the story
CAPS is no crowd of lemmings. Its best-performing investors' opinions do more to shape each company's rating than the picks of their poorer-performing peers. Let's use the collective wisdom of more than 110,000 CAPS investors to filter out the noise and find companies offering strong momentum.

We'll use CAPS' handy stock screening tool to quickly zero in on companies with a stock price increase of at least 25% in the past four weeks, a market cap of greater than $100 million, and a beta of less than 3. That'll keep us clear of the wild, pump-and-dump land of penny stocks.

Here's a sample of stocks our CAPS screen returned:

Source: Motley Fool CAPS. Price return from Jun. 27 through Jul. 21

With our list of screened stocks pulled up in CAPS, it then only takes a single click on individual companies to get some context behind the recent momentum.

Barr Pharmaceuticals
Group hugs seem to be the "in thing" these days as the growing generic drug market has made Barr an acquisition target of rival Teva Pharmaceutical (NASDAQ:TEVA). In a $7.5 billion cash and stock deal, Teva will pay three times Barr’s annual revenue, which is a bit of a premium over similar deals in recent years. If the deal goes through, Teva will not only take a big lead in the U.S. generics market, but the firm will also get a team of lawyers with a solid track record at opening the door for sales of new generics. CAPS members have been big fans of Barr, with 96% of the 864 members rating the company expecting it to outperform the market.

Genentech
Genentech posted a mixed bag in its first quarter financials release last week. Sales for its top drugs Avastin and Rituxan had double-digit growth with its in-house Avastin sales accounting for 20% of its revenue. But the bottom line of GAAP net income grew only 4.7%, lagging behind an 8% overall rise in revenue. But this divergence was quickly overlooked when Roche swooped in to buy the 44% of remaining Genentech shares that it didn’t already own for $43.7 billion. Roche isn't the only one ogling Genentech's future potential -- 1729 of the 1814 of CAPS members rating Genentech see it as a market-beating investment.

Exelixis
Pulling out of a tailspin, drug developer Exelixis has seen investors optimism return as the investors now anxiously await the first data results of Exelixis’ thyroid cancer drug XL184. With no targeted therapies on the market specifically approved to treat the same type of thyroid cancer, XL184 has big potential, though other companies such as Pfizer (NYSE:PFE) with their drug Sutent are eyeing thyroid cancer treatment. Exelixis also recently secured another $150 million in loans over the next 18 months with one of its largest shareholders, Deerfield Management. With the cash boost helping to support further clinical testing, a majority of CAPS members -- 96% in fact -- are bullish on Exelixis.

New Oriental Education
Volatility and China go hand-in-hand these days. Private education service provider New Oriental took its turn earlier this year when second fiscal quarter earnings soured investors, sending shares down more than 35% in a little more than a week. While the long-term trends -- such as the Chinese economy's 11.5% growth in 2007 -- have many believing the country still offers the world's greatest value, valuation has kept New Oriental off of many investors' buy list. Still, 94% of the 773 CAPS members rating the company expect it to outperform the market.

And you?
What's your story? Whether you buy the tale of a stock that's soaring or souring, your own research is more important than collective opinions. But these collective opinions can make your due diligence a whole lot easier.

Add your take on these or any of the 5,500 stocks that our 110,000-plus investors have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.