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 and accuracy 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 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.
CAPS Rating(out of 5)
EPS Growth Next Year
21Vianet Group (NAS: VNET)
Amazon.com (NAS: AMZN)
Yongye International (NAS: YONG)
Source: Motley Fool CAPS; Yahoo! Finance.
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
Chinese Internet datacenter provider 21Vianet Group has regrouped after a bad showing following its IPO in May, though the stock still trades 40% below the early highs it hit. If you're not familiar with 21Vianet, I noted last week it might be thought of as China's Cisco, and its recent earnings report at least gives investors a reason to hope it can experience something of the growth its U.S. counterpart achieved in its early days.
Still, there's reason for concern, too. Not because it's fraudulent, as so many Chinese small-cap stocks seem to be these days, but rather because it is set up as a variable interest entity (VIE) designed to get around China's prohibition on foreign ownership of key industries. Lots of Chinese businesses have such structures -- Sina (NAS: SINA) and Baidu (NAS: BIDU) are two examples -- and thus far, the government has chosen to look the other way.
That may not always be the case. Earlier this year, Buddha Steel pulled its planned IPO because the government disallowed its VIE, and in 2006, the Ministry of Information Industries notified the public that Internet companies using the structure would receive closer scrutiny.
While I think the risk is small that anything will be done, it's certainly one an investor needs to be aware of when putting money on the line. Right now, opinion is unanimous that 21Vianet will beat the market averages, and I've even cast my lot with the bull. But you can let us know your own views on the 21Vianet Group CAPS page.
Price is what you pay
It's taken the CAPS community an inordinately long time to come around to the conclusion that e-commerce king Amazon.com is worth the price, but surprisingly, the move comes just as its stock has fallen 10%. Maybe that's the reason.
While Amazon is a long way from its humble roots as an online bookseller, the demise of Borders Group highlights the power Amazon still holds in books. Barnes & Noble (NYS: BKS) has been looking for an exit strategy and hoping a $1 billion offer from Liberty Media would be realized. That's looking less likely now.
Back in the early Internet days, analysts would routinely balk at Amazon's valuation, and even today, with a P/E multiple north of 90, it still trades in the nosebleed section. Yet with almost three dozen analysts following the e-tailer, fewer than 10% have reservations it can beat the broad indexes.
Tell us on the Amazon.com CAPS page if this stock is an open book and worth the price.
A deal with some teeth
The deal by Morgan Stanley to prop up Chinese agricultural company Yongye International with a $50 million investment brought the stock up off the lows it was hitting due to relentless claims of fraudulent or suspect activity, but it hasn't been enough to stop the overall decline.
Yet Morgan Stanley isn't alone in thinking the short-sellers are simply making otherwise attractive Chinese stocks cheap. Bain Capital is buying out China Fire & Security (NAS: CFSG) after short-sellers brought the stock low and at least four other private equity firms are bailing out Chinese investments.
Like it or not, all signals point to China as being one of the great new markets of the 21st century. It's currently the wild west. Many businesses will fold and many others will thrive. Some are shams and many are the real-deal. This one looks genuine to me. Morgan Stanley appears to agree with this assessment, and has invested $50M.
Add your own thoughts on the Yongye International CAPS page and let us know whether the fertilizer company can grow its stock price again.
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.
At the time thisarticle was published The Motley Fool owns shares of Yongye International. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Amazon.com, Cisco Systems, Yongye International, Baidu, and Sina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributorRich Dupreyowns shares of Cisco does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here.
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