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, Evergreen Solar's (NASDAQ:ESLR) announcement of two new contracts totaling $600 million last week gave shares a 20% boost 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 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 30% 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 the difference between the closing price on May 23 and the closing price on June 23, per Yahoo! Finance. Star rankings from CAPS.

Now let's pull some cues from CAPS and get some context behind the recent momentum.

Titan Machinery:
Our top-rated momentum mover this week, Titan Machinery, has been blowing the market away over its short public life. The agricultural equipment maker plowed through expectations in its latest quarter with earnings of $0.24 per share. After boosting revenue and earnings guidance, the company may end up as the year's top stock. Titan is already a five-star stock in CAPS, with 413 of the 428 investors rating the company as one that will outrun the broader market.

Intrepid Potash:
Intrepid Potash is another recent IPO related to the agricultural boom that has shown strong momentum lately. After a strong debut in April, Intrepid has been nothing but up, even with a premium valuation at its public coming-out party. I guess when you deliver first-quarter net income of $33.1 million, which exceeds the income from the entire year of 2007, investors get a little excited. Exercise caution, however -- a few top-ranked CAPS players are giving the potash miner the thumbs-down, using terms like "hype" and "not sustainable."

Elan:
Stock in Irish drug maker Elan has been trending up after a preview of some results from tests of its mid-stage Alzheimer’s drug with partner Wyeth (NYSE:WYE) last week. Some analysts concluded that the drug appears to help treat a large percentage of patients with the disease and even help prevent the disease in others. Not everyone sees it so clearly though, leaving biotech Fool Brian Lawler waiting for more details on the study next month.

James River Coal:
Of course, our momentum list wouldn't be complete without a few more commodity plays. James River Coal is seeing demand drive up prices for coal (and its share price with it). Some European countries turning away from traditional suppliers to eastern U.S. companies like James River Coal for their commodity needs. Already a staggering five-bagger in only six months, the once-obscure James River Coal is indeed the new strong buy on Wall Street. But CAPS investors are not all aboard this coal train; 65 of the 503 investors rating the company see it as overpriced and destined to lag the market.

Northern Oil and Gas:
Explorer Northern Oil and Gas has been soaring higher too. The company will expand its acreage in North Dakota in a recent agreement to buy an additional 24,000 net acres. Inside, Director Robert Grabb has joined the club of insider buys gone wild in the oil and gas sector when he purchased 80,000 shares of common stock in April and joined the 97% of the bullish 550 CAPS investors rating the company.

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. It's totally free to be a part of the community, and the payback is more than worth it.