These Once-Cold Stocks Are Heating Up

When a stock's share price is lower than the mercury in a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.

Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 160,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence and see whether they're truly heating up -- or headed back to the deep freeze.

Source: Motley Fool CAPS.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too. 

Caution: Contents may be hot
Considering the depressed state of natural gas, there's an awful lot of interest heating up in the sector. We're awash in a sea of natural gas, yet with all the talk of expansion going on, it looks like that's not about to change anytime soon. Baker Hughes reported last week that industrywide natural gas rig counts in the U.S. had risen again to 941, some 42% more than last July when the rig count bottomed at 665. Little wonder then that the most active natural gas contract was off 20% for the month of March and down 31% for the quarter.

The Marcellus Shale is the focus again these days, with Dominion Resources (NYSE: D) selling Appalachian exploration and production assets to CONSOL Energy (NYSE: CNX) and Atlas Energy possibly partnering up with India's Reliance Industries. Even Sempra Energy might tag along.

While prices are depressed, if the long-sought-after economic recovery ever rolls through, gas prices could stage a rally. And Atlas, after seeing proved reserves grow to more than 1 trillion cubic feet equivalent from continued development of its Marcellus acreage, would be a beneficiary. It was the addition of more than 3,100 drilling locations in the shale deposits there that had CAPS member EnigmaDude joining the Atlas bulls.

Although 88% of CAPS members rating the independent gas producer believe it will outperform the market, some 92% of the All-Stars on the Atlas Energy CAPS page believe it will surpass the returns of the broad market averages.

Don't get disconnected
The credit card industry is another one banking on an economic recovery to pull it back from the precipice. Delinquency rates stabilized this quarter as American Express (NYSE: AXP) reported that loans at least 30 days past due stood at 3.6% in February, unchanged from the month before, while Bank of America (NYSE: BAC) reported that they dropped to 7.23%, from 7.35% in January.

Discover Financial Services also reported that delinquencies dropped in February, but its charge-off rate jumped to 9.11%, and the $305 million sequential increase in loan-loss provisions helped it to record a loss of $0.22 per share this quarter, compared to a $0.25 per share profit last year.

While SUPERMANSTOCKS says consumers haven't learned from the recession and will quickly return to their "hard charging" ways, finalglide is looking for Discover to grow based upon its improving fundamentals. Maybe they're both really saying the same thing:

Relative underperformance so far, strong fundamentals going forward, and closed network will all lead to strong gains as economy bounces back.

Smart grid choices
Demand response aggregators Comverge and EnerNOC both recently reported quarterly losses, but it's EnerNOC that looks poised to reap the benefits of its Smart Grid plans sooner. Its outlook for the full year suggests that its initiatives to pay utility customers to reduce energy consumption during peak demand hours will come to fruition first and it is making acquisitions to expand its customer base.

CAPS member EProsperFi recognizes the need to introduce efficiencies into our energy distribution system, thus making EnerNOC a smart investment, but wljfool is looking for government stimulus spending to drive it higher in the near term:

EnerNOC's energy management business fits in well with smart grids technology. The economic stimulas spending on smart grid should position the company well in the near term.

Checking the mercury
Are these stocks invitingly warm or bitterly frosty? It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think are hot little numbers, and which offer cold comfort. It's free to sign up.