These Cold Stocks Are Heating Up

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When a stock's share price is lower than 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 of 180,000-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 low-rated companies that have recently enjoyed a bump in investor confidence to the top tiers and see whether they're truly heating up -- or headed back to the deep freeze.

Company

CAPS Rating (out of 5)

Recent Price

EPS Growth Next Year

Baidu.com (NAS: BIDU) ***$117.3741%
Aruba Networks (NAS: ARUN) ***$13.72112%

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
Talking about stealing a page from someone's playbook. Since Google is essentially persona non grata in China for not censoring search results, Baidu.com has had free run of the place building up an enormous share of the search market. However, just as Google branched out into other areas, most successfully its Android-based mobile operating system, Baidu is following suit and widening the net cast by its Baidu Yi mobile operating system.

There had been rumors it would be the default search engine in Apple's (NAS: AAPL) iPhone in China, but if its own smartphones are going to be selling for a significant discount to the iPhone, there's good reason to believe the two will never actually pair up. And with it using Apple's own supplier Foxconn to manufacture its handset, the animosity might just run deeper than either party lets on. It will be interesting to see whether Foxconn favors the homegrown rival over Apple if shortages crop up again -- or if the government mandates such favoritism.

In any case, the situation seems to be a net benefit to Baidu, though there's no guarantee of success. Simply following the path someone else blazed doesn't mean you're going to achieve the same kinds of results. After all, its plunge into e-commerce hasn't generated any Amazon-size returns and seems to be floundering, as did its attempt to enter the world of micro-blogging.

Yet 87% of the nearly 5,000 CAPS members rating the Chinese search site believe it will outperform the broad market indexes. It's hard to bet against a virtual monopoly, but tell us on the Baidu.com CAPS page if you think it will make the connection, and then add the stock to your Watchlist to see whether the stock can further out-Google Google.

Try this on for size
Despite the hope that securely linking mobile users of smartphones, notepads, and notebook computers to wired networks would be the elixir Aruba Networks was searching for as it sought to encroach on Cisco's (NAS: CSCO) wireless-network equipment turf, it hasn't quite worked out as planned, and shares continue to fall, dropping 47% over the past year and 37% in the past three months alone.

The problem has been the growing concern over enterprise level IT spending, which was largely blamed for the fall from grace of computer makers Dell and Lenovo, and Cisco itself. With Riverbed Technology (NAS: RVBD) also getting slammed, one could probably round out the lot and say that F5 Networks' next quarterly report due out in July won't be a killer, either (though last month's earnings report was solid, even though it didn't represent a harbinger for what was to follow).

So even though Aruba boosted profits and revenues and came in line with analyst expectations, the market was left unimpressed and dropped its stock further.

CAPS member befoolin speculates that the equipment maker will become an acquisition target before long, and with its technology allowing users to bring their own devices to the table, it may indeed prove a tempting target for someone. That could be why 91% of the CAPS members rating Aruba see it outperforming the broad market averages. Add Aruba Networks to the Fool's free portfolio tracker to follow whether it will turn the sector's pessimism on its head.

Checking the mercury
The jury's still out on these two stocks, as it is for a certain company that went public last week. Any guesses? It's Facebook, of course, and while it continues to flood the headlines, our analysts at the Fool think investors would be better served paying attention to another company sporting some hidden weapons Facebook doesn't have. The report is free, but it's available only for a short time, so get your copy today and find out which stock we think could put Facebook's business model to shame.

At the time this article was published Fool contributorRich Dupreyowns shares of Cisco Systems and Apple, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Baidu, Google, Riverbed Technology, Apple, and Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Riverbed Technology, Dell, Apple, F5 Networks, Google, and Baidu, creating a bull call spread position in Apple, and creating a synthetic long position in Riverbed Technology. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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