These Cold Stocks Are Heating Up

When a company's share price is lower than the mercury in a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a company'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 has made that move up.

Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 165,000-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 companies that were rated one or two stars but 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, as of July 14.

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 on CAPs are taking notice of these stocks, maybe we should, too. 

Caution: Contents may be hot
With analysts expecting 29% earnings growth next quarter and 14% growth in the long term, document and information management company Iron Mountain might be entering bargain territory, particularly because shares have fallen 15% over the past year. Warren Buffett certainly thinks so. Earlier this year, his Berkshire Hathaway (NYSE: BRK-A) scooped up more than three-quarters of a million shares, giving it almost 7.8 million shares total.

In its latest quarter, Iron Mountain achieved 7% revenue growth primarily on the strength of its complementary services, where revenue grew 17% year over year. It includes lines of business such as data restoration, consulting services, and the sale of recycled paper.

Highly rated CAPS All-Star corpblues views the fact that Buffett has taken an interest in the company as a sign for good, long-term growth.

Following WEB Stock has taken a beating lately, might be a good entry point. Overall [economy] continues to be sensitive to bad news and investors are scared growth is years away. Market seems to be confirming this outlook.

A bull's-eye?
If sanofi-aventis is in fact stalking a big acquisition here in the U.S., analysts think there are only a handful of real targets for it. In the biotech sector, Vertex Pharmaceuticals, the maker of top-ranking potential hepatitis C therapy telaprevir, is a leading contender, as are Biogen Idec (Nasdaq: BIIB) and Celgene (Nasdaq: CELG).

If Vertex became the target, it might set up some messy relationships because there is a collaboration agreement with Johnson & Johnson (NYSE: JNJ) for the commercialization of telaprevir outside North America and the Far East.

More than 90% of CAPS members rating the biotech have picked it to outperform the market. You can add your own opinion on the potential for growth -- or a takeover -- on the Vertex Pharmaceuticals CAPS page.

Tomorrow's big rig
Has trucking giant YRC Worldwide climbed to its feet again? The owner of Yellow Transportation, Roadway, and New Penn has been fending off bankruptcy protection as the economy tanked, oil prices soared, and railroads offered a seemingly better value proposition. Yet YRC Worldwide now expects to have adjusted EBITDA of as much as $45 million for the second quarter, a nice change from last quarter's adjusted EBITDA loss of $53 million.

It has boosted liquidity, shed its logistics business, and appears to be gaining a more firm financial footing. As business improves, YRC Worldwide is going to soak up more working capital, but that's not necessarily so bad because it ought to lead to better conditions later on, and management says there shouldn't be any more mass layoffs.

While 83% of the CAPS members rating YRC Worldwide indicate they believe the trucker will hang in there, surprisingly, a slightly higher percentage of All-Star CAPS members concurs. Wall Street is more evenly split on the possibility, but CAPS is more than just what top investors or professional analysts think.

Go to the YRC Worldwide CAPS page and offer your opinion on whether the company will continue to avoid bankruptcy protection.

Checking the mercury
Are these stocks invitingly warm or bitterly frosty? It pays to start your research 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 numbers and which offer cold comfort. It's free to sign up.