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.
EPS Growth Next Year
Longwei Petroleum (ASE: LPH)
Oclaro (NAS: OCLR)
Tibco Software (NAS: TIBX)
Source: Motley Fool CAPS; Yahoo! Finance. NA = not available. NM = not meaningful; Oclaro is estimated to go from a $0.34 loss to a $0.43 gain.
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.
Don't get left out in the cold
You can sense the sting that accusations of financial ineptitude have caused Chinese petroleum storage and distribution company Longwei Petroleum. During the course of revising guidance downward by 4% last month, the CEO took pains to say that the company remains committed to not diluting shareholders and thus was paying cash for an acquisition.
Of course, investors have good reason to be antsy about getting marginalized, as CAPS member dillbeans noted earlier this year that management has a knack for instilling doubt. After diluting shareholders a couple of years ago when the stock was trading around where it is now, Longwei filed another $50 million offering late last year that panicked investors. And when the stock was trading north of $3 a share, the CEO sold shares in a private transaction for half that amount.
Longwei says the acquisition will make it the largest privately owned fuel storage and distributor in the Shanxi province, but it's still competing against Sinopec and PetroChina (NYS: PTR) , two government-owned entities that dwarf Longwei.
The CAPS community has been generally supportive of Longwei, with 96% believing it will eventually outperform the broad indexes. Even dillbeans finds its current price attractive and offered his 14 reasons to be bearish on it as a means of playing devil's advocate.
Let us know on the Longwei Petroleum CAPS page whether you think it can generate enough investor interest to thrive before it's diluted out of existence.
I will survive
Sometimes surviving is all that counts. The optical networking industry just came off a particularly nasty downturn, and with major telecoms all anticipating reining in capex spending, it's clear the likes of Finisar, Oplink, and Oclaro are not out of the woods.
But having come through the worst of it, emerging from the wreckage is an achievement in itself. Oclaro with some justification can be said to be ready for the next phase of growth. Its current fiscal year is expected to end in the red, with analysts forecasting a loss of $0.34 a share, but 2013 is shaping up to be profitable again with earnings of $0.43 a share, a pretty big turnaround. Still, it will be a long wait for investors.
Inventory issues hit it and JDS Uniphase (NAS: JDSU) this year, which nipped margins for each. With 87% of the CAPS members weighing in on Oclaro thinking it will outperform the broad market averages, it's apparent they see it coming in from the storm still hale, but you can tell us on the Oclaro CAPS page whether you believe the turnaround will really come.
Sailing among the clouds
The "connected living room" isn't playing out as expected, as consumers prove reticent in shelling out bucks to make it happen. Logitech (NAS: LOGI) had a fire sale on its Revue Google TV device as returns outpaced sales and home-networking chipmaker Entropic Communications (NAS: ENTR) missed analyst revenue and earnings forecasts as a result of customers changing inventory management practices.
It's been something of a tough sell at the corporate level, too. Tibco Software sells enterprise-level software that allows applications to connect to one another. Its shares fell right along with everyone else and are down 37% from recent highs. But results were otherwise solid despite coming up against tougher comps, with sales up 25% last quarter and earnings 64% higher. What likely spooked investors was the slight pullback in growth estimates: It expects sales to come in only 17% to 20% higher this quarter.
CAPS All-Star cz4ever says that despite Hewlett-Packard having passed on buying the company, Tibco remains an attractive target for someone. "Attractive buyout candidate for companies beefing up their enterprise software portfolio (cf., Hewlett-Packard)."
Connect with other like-minded people on the Tibco Software CAPS page and let us know if you think a new suitor will appear.
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 Fool contributor Rich Duprey holds no position in any company mentioned. The Motley Fool owns shares of Logitech. Motley Fool newsletter services have recommended buying shares of Logitech and Tibco Software, as well as writing covered calls on Logitech. 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.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.