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, stock in world-renowned gum supplier Wrigley (NYSE:WWY) surged more than 23% when Mars and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) orchestrated a sweet, $23 billion offer for the company last month.

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 105,000 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 15% 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:

Return data is calculated as the difference between the closing price on April 29 and the closing price on May 27. Star rankings from CAPS.

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.

Good health, bad health
It's been down, it's been up. Then down again, now up again. Investors in managed care provider WellCare have seen it all in the past year. As the company recovers from its implosion last October -- when state and federal agents raided the company -- investors have been whipsawed by news from both inside the company and in the wider industry. While the larger health-care industry remains under pressure to reduce costs, WellCare has been cleaning house in upper management to realign the business.

In the past month, however, shares of WellCare have been rising again, because investors see the company as a potential takeover target. Even late financial results and a $32 million charge related to the ongoing investigation hasn't driven more sellers than buyers this month, as the stock has continued to advance amid these concerns. The company is also making shrewd moves to balance the size of the company for current economic conditions by cutting 5% of its workforce to better compete in the market for government-sponsored health-care programs.

Even with all the gloom and doom surrounding WellCare and the health management sector as a whole, many value investors see the health-care sector as recession-proof. They also have a strong lead to follow: WellCare has caught the eye of renowned value investor Monhish Pabrai, whose fund invested in shares in the first quarter of 2008. The CAPS community largely agrees that the risk is worth it, with more than 94% of CAPS investors voting bullishly for WellCare to beat the S&P going forward.

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 5,600 stocks that our 105,000-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.