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, construction equipment maker Gehl announced a takeover bid from French equipment maker Manitou, and shares jumped 116%.

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 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 30% in the past four weeks, a market cap of greater than $100 million, and a beta of less than 3.

Here's a sample of stocks our CAPS screen returned:

Source: Motley Fool CAPS. Price return from Aug. 15 through Sept. 12.

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.

Fashion or flop?
A huge winner for investors over the long run, women's apparel retailer Chico's FAS, has been sliding for more than two years, along with other retailers, as the economy exacts a toll on consumer spending. But the stock got a boost in the past few weeks because some investors saw glimmers of hope in Chico's second-quarter earnings and an opportunity to expand its presence with an endorsement deal with Debbie Phelps, the mother of Olympic gold medalist Michael Phelps.

Weaker sales and higher merchandise markdowns led to an 83% fall in profits for Chico's second quarter, but the results still came as a relief to analysts who had feared worse. Even though same-store sales fell like a rock -- down 15.9% across all its stores -- Chico's has the advantage of a strong balance sheet, with $278 million in cash and equivalents and no debt. And though he acknowledged that the results were disappointing, Chico's Chairman Scott A. Edmonds said he expects to see improvement and believes the company will be profitable in the second half.

Not all members of the CAPS community weighing in on Chico's are certain if the company is out of the woods yet: 89% of the 781 members rating Chico's believe it will outperform the market; 87 are still bears.

On the borderline
Earlier this year, Borders was considering significant "strategic alternatives" to keep the company alive, but some additional financing from a major shareholder and cost-saving efforts have helped keep the doors open. Competitive prices and the potentially industry-changing Kindle from Amazon.com (NASDAQ:AMZN) make regaining and maintaining profitability a serious challenge.

With shoppers increasingly choosing discounters like Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST) for their impulse book buying, Borders reported a 6.9% drop in sales for the second quarter. But in another episode of "bad, but not nearly as bad as expected," investors cheered the quarterly loss and boosted shares by 20%. While management wasn't happy with the loss, it said it likes the direction the business is going and sees that its restructuring, including cutting back on its music business and getting rid of some debt, has been paying off.

With shares down nearly 50% in the past year, it has been tempting for some investors to bet on a turnaround. But a good number of CAPS members hold a bearish opinion on Borders. Only 64% of the 323 CAPS members rating Borders expect it to outperform the market.

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.