The clock's ticking down, your team's down one, you're being double-teamed, and you wouldn't have enough time to get off a good shot even if you were allowed to dropkick both defenders. So, to whom do you dish the rock?
Your first thought might be the resident superstar -- the Kobe Bryant or LeBron James. But what if Kobe, as good as Kobe is, is playing colder than an Alaskan snowdrift? That's right -- you dish to the guy with the hot hand, the guy who will be deemed en fuego tomorrow on ESPN.
Momentum investors are looking for stocks in a similar state of sizzle when they make investments. They want to give the nod to the stocks that are hot to the touch.
But momentum by itself will only get you so far. What sounds more interesting to me than simply looking for stocks that have momentum is finding high-quality stocks that also have some positive inertia on their side. It's like getting the ball out to Michael Jordan or Larry Bird when they do have a hot hand.
To find these high-quality winners, I cross-referenced a pretty simple momentum screen with data from The Motley Fool's new investing community, CAPS. The result is a starting lineup of all-star stocks that all currently have a fiery shooting hand. Each of the stocks below has risen 30% or more over the past year, is within 5% of its 52-week high, and has a high rating among CAPS players.
|
Stock |
12-Month Change |
Percent Below 52-Week High |
CAPS Rating (Out of 5) |
|---|---|---|---|
|
Chaparral Steel |
151.3% |
0.4% |
**** |
|
Nuance Communications |
144.8% |
3.3% |
***** |
|
Core Laboratories |
68.7% |
4.3% |
***** |
|
Layne Christensen |
68.6% |
2.5% |
***** |
|
Jacobs Engineering Group |
64.1% |
2.6% |
***** |
At first glance, this sure looks like a high-quality group. But as always, I highly advise taking a close look before you throw a bounce pass in the direction of any of these stocks.
A Nuance in the market
A few years back, when the dot-com bull market was still raging, I was visiting a doctor friend who had just picked up his newest toy. It was a software setup called Naturally Speaking, by a company called Dragon Systems. The software came with a headset and allowed him to talk instead of type to do his dictations.
At the time, the software was a bit clunky and pretty spotty on the accuracy, but it was nonetheless very cool. Of course, what was a novelty then is a relatively normal part of business operations today.
Dragon Software was purchased by a company called Lernout & Hauspie in 2000. When that company went bankrupt from a massive accounting scandal, Motley Fool Hidden Gems pick Nuance Communications opportunistically swooped in and bought the company's speech technology.
The company has grown rapidly since then -- its revenue for fiscal 2006 was $389 million, more than double what it had been two years prior. The growth hasn't been without its costs, though, and heavy spending on operations has kept the company running unprofitably on a GAAP basis to date.
On the other hand, non-GAAP financials -- which both the company and Wall Street seem to follow -- allow the company to back out amortization from intangible assets as well as heavy amounts of stock-compensation expense and show profitable results. While I'm not a big fan of relying on non-GAAP financials, I do like to keep an eye on the cash flow statement. A quick glance there shows that as far back as 2001, the company has been raking in more cash from operations than it has to spend on capital expenditures.
On CAPS, the stock is a favorite, with 4,003 outperform ratings versus just 164 saying the opposite. While some players seem to be concerned about the company's lack of profitability, that's more than overcome by the lock it has on its industry. N8doggaffool is one of those bullish CAPS Fools. "I think they have a corner in this market like Microsoft
So does Nuance deserve a place on your All-Star team? You can share your thoughts or check out more of what your fellow Fools had to say about it or any of the other stocks above by visiting CAPS. And while you're there, you can also take a peek at few more of the 4,900 other stocks that participants have rated on CAPS.
I think I heard a boo-yah somewhere out there -- thanks, Stuart Scott!
More CAPS Foolishness:
When it comes to basketball, Fool contributor Matt Koppenheffer might be the guy Ron Shelton was thinking of when he thought of the title White Men Can't Jump. He does not own shares of any of the companies mentioned. Microsoft is an Inside Value newsletter recommendation. The Fool's disclosure policy has a 55-inch vertical jump and can dunk from half-court. Or so I hear.
