5 Cold Stocks 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 140,000-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; NA=not available.

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
Like grass clippings turning into garden compost, biofuels producer Rentech is heating up investor sentiment as it inks more deals that may prove the operational viability of its proprietary technology. According to Rentech, it operates the only fully integrated production facility for synthetic transportation fuels in the U.S., and it recently signed a deal to supply its synthetic jet fuel to eight airlines for the airlines' ground equipment at Los Angeles International. Another supply deal with the U.S. Army for a demonstration of its synthetic diesel in a special-purpose military vehicle also caused a surge of interest, though how much fuel was actually sold has not been revealed.

Rentech is going to need more such deals if it wants to avoid the fate of other biofuels producers. A recent Wall Street Journal story noted that the industry is running on fumes these days, as lower oil prices, excess capacity, and bureaucratic delays have hit the industry hard. According to the National Biodiesel Board, two-thirds of production capacity sits idle.

While third-party private investment in biofuels is on the decline worldwide, the U.S. has mandated that 7% of the nation's total fuel supply consist of cellulosic ethanol by 2022. ExxonMobil (NYSE:XOM) is joining other major oil and chemical companies getting into the biofuels act, which ought to keep some focus on the potential the industry possesses.

CAPS member SeattleBalanced believes Rentech's recent private placement highlights the long-term potential the biofuels processor has to become a big winner for investors.

This company has good IP, strong executive team, strong investors backing up future r&d, promising long term contracts like the one with LAX and some interesting military prospects. The injection of $20m in fresh capital from institutional investors buying the stock at $1.8 for a company at the start-up stage, signals a potential 5x to 10x return over 5 years.

Red hot or ice cold?
That's the question investors might want to ask themselves when it comes to biotech-testing equipment provider Luminex. Although highly rated CAPS All-Star member JPG101 finds the company perched "to ride the wave of diagnostic upgrades that our medical system will eventually need to do," cutbacks in client capital spending have forced Luminex to lower full-year revenue guidance twice. In its most recent quarter it also committed the regrettable sin of missing analyst expectations three times in a row.

Missing earnings is an affliction that permeates the industry right now. China Medical (NYSE:CMED) recently posted results showing that operations were suffering from the same malaise, but the potential for better results in the coming years looms large. Analysts believe life-sciences companies such as Luminex are uniquely positioned to capture both federal stimulus funding that will pour into the sector and money from academic research facilities.

As the domestic stimulus takes effect, Luminex hopes to improve its position. But it is also establishing a global presence, including expansion into China.

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 and participate.