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, when Barrett Business Services released higher-than-expected second-quarter earnings and raised third-quarter guidance, its shares rose 40% in a single day.

But beyond less-predictable events like that one are stocks with fundamentally compelling reasons for recent momentum. The trick is to find those stocks. 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 members 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 30% in the past four weeks, a market cap of greater than $100 million, and a beta of less than 3.

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

Source: Motley Fool CAPS. Price return from Jul. 3 through Aug. 1.

Graham
Power-generation equipment specialist Graham still sees strong demand for its products as petrochemical and power-generation industries continue to expand. As such, the company expects revenue growth of 15% to 20% for this coming fiscal year. Riding the commodity wave, the company also recently hiked its annual dividend by 33% and declared a stock split. With almost no long-term debt, this star performer has had CAPS members glowing -- 97% of the 1,012 CAPS members rating Graham expect the stock to outperform the market going forward.

Ceradyne
Despite flat sales and a 12% fall in profits in the second quarter, future promise in some new areas of business has many investors bullish on Ceradyne. Adding to its primary business in making ceramic body armor for troops, Ceradyne has plans for a new facility in China to ramp up production of its line of ceramic crucibles, which help companies like Suntech Power (NYSE:STP) make solar cells. It’s also looking to take a piece of the aluminum market with a product for smelters that is expected to cut down emissions and save up to 20% on electricity. With many avenues open to produce value to shareholders, Ceradyne is expected to beat the market by more than 97% of the 1,292 CAPS members rating it.

Woodward Governor
Woodward Governor is sitting in a sweet spot these days as a supplier to both the aerospace and power-generation industries, which are both showing robust demand. With big customers like Boeing (NYSE:BA) continuing to produce strong order volume for turbines and engine parts for aircraft, stock in Woodard soared after it posted a 38% increase in earnings for the third quarter and raised fiscal 2008 guidance. CAPS members are nearly unanimous in their favor for Woodard -- only nine of the 568 members rating the company have logged bearish votes.

Bank of America
The market expected the worst for Bank of America, meaning it didn't take much to send shares soaring on the company’s second-quarter results. Net income dropped 44% to $3.41 billion, but total net revenue came in at a record $20.32 billion. Although its consumer credit card and real-estate-related segments suffered big declines, other segments, like investment banking and global wealth and investment management, picked up the slack. B of A also eased investors’ worries when it recently declared its regular $0.64 quarterly dividend and announced a 75 million-share buyback plan. Not everyone is piling on, though -- only 85% of 5,939 CAPS members are expecting Bank of America to outperform the market going forward.

JetBlue
Battling through some pretty tough times in the airline industry, JetBlue managed to make 2007 its first full year of profitability since 2004. As crude oil prices eased recently, many airline stocks, including JetBlue, have seen solid gains. JetBlue has also joined the rapidly growing nickel-and-dime club; it recently instituted a fee of $7 for in-flight use of a pillow and blanket. CAPS members must be partial to free blankets, as only 78% of the 1,033 members rating the airline are bullish on JetBlue today.

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.