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 soaring by 10%, 25%, even 50%.

For example, shares of Longs Drug Stores rose 31% in a single day when news broke that CVS Caremark (NYSE:CVS) would acquire the company.  

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 members' opinions do more to shape each company's rating than do the picks of their poorer-performing peers. Let's use the collective wisdom of more than 115,000 CAPS members 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 25% 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:

Source: Motley Fool CAPS. Price return from July 25 through Aug. 22.

With our list of screened stocks pulled up in CAPS, it then takes only a single click on individual companies to get some context behind the recent momentum.

Solar's still shining
When Chinese solar-cell maker Suntech Power reported both sales and earnings growth higher than 50% for the second quarter, investors sent shares soaring. Suntech also cited growing demand when it expanded its expected revenue target for the full year to a range of $2.05 billion to $2.15 billion. Suntech's capacity expansion plans could also make it the largest solar photovoltaic maker in the world, as the company aims to have 1-gigawatt production capacity by the end of the year.

In May, Suntech bought a stake in wafer manufacturer Shunda Holdings and signed a long-term supply agreement with the company. With this deal and other supply agreements, Suntech has 900 megawatts of silicon supply already locked up for 2009, more than enough to cover any contracts in-hand and any that are currently in the works. The company is also forecasting silicon costs to be about 20% lighter on the pocketbook next year. If so, the lower outlay will help expand margins. With more strong growth expected ahead, nearly 97% of the 3,793 CAPS members rating Suntech Power expect the stock to outperform the market going forward.

In fine form?
Shares of FormFactor have jumped during the last month, but year to date, the maker of semiconductor-wafer probe cards has still fallen by more than 40%. Citing weak demand in a challenging semiconductor market, some Wall Street analysts are still striking a bearish tone on FormFactor.

FormFactor's second-quarter earnings did two things, though -- they affirmed that the market is indeed tough, but they also reminded us that things aren't as bad as those bearish analysts believe. FormFactor reported losses of $0.38 per share, enough to send the stock up 6% -- the market was anticipating much worse. The next quarter still looks bleak, however, and management sees more losses as customers preserve cash and hold off on new investments.

But FormFactor itself has plenty of cash. It's sitting on a comfortable $540 million in cash and marketable securities and has minimal debt. That favorable financial situation will help it ride out the lean times, even while customers such as Intel (NASDAQ:INTC) are cutting back on spending. And with its aggressive investment in next-generation technologies, FormFactor is more than a little tempting to Fools and CAPS members -- more than 97% of the 979 CAPS members rating FormFactor expect it 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 5,500 stocks that our 115,000-plus members 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.