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
Nokia (NYS: NOK)
Ocz Technology (NYS: OCZ)
Towerstream (NAS: TWER)
Sources: Motley Fool CAPS, Yahoo! Finance. NM = not meaningful; TowerStream is projected to go from a 2011 loss to a 2012 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.
Caution: contents may be hot
The U.S. market has primarily been a competition between Apple's (NAS: AAPL) iPhone and Android-based devices, but in the rest of the world, Nokia is the unabashed largest handset maker by volume. That doesn't mean sales are great; in fact, they've been anything but robust, though it still has plenty of cash on hand to allow its new management team the breathing room needed for a turnaround.
Nokia recently said it will slash 3,500 jobs worldwide, and its deal with Microsoft (NAS: MSFT) to adopt the Windows OS for its phones remains on track. And Apple's stumble with the iPhone 4S could give Nokia the opening it needs to regain some lost ground. Disappointment that there was no iPhone 5 is huge (if nonsensical), but perception is reality, so Nokia ought to capitalize on it as best it can.
Although CAPS member rustydutch believes the handset maker is a dying brand, more than 2,600 others -- roughly 90% of those weighing in -- think it can make a comeback -- like TMFGrgurich, who thinks management is making the right decisions these days: "Nokia has plenty of cash on hand on and strong, smart leadership in Stephen Elop. Teamed up now with Microsoft, I think Nokia will turn things around and become the third major player in the smartphone market."
Share your thoughts on the Nokia CAPS page if you think it can still gain traction, and then put it on your watchlist to keep track of its progress.
Solid state of growth
Compare Ocz Technology's stock chart to last quarter's earnings report, and you might think there was something amiss, or that I was wrong for hailing its decision to abandon the DRAM market in favor of making solid-state storage devices. A 29% drop in value since the end of June hardly seems prescient. Yet it was a harsh quarter for many in the space, including industry leader STEC (NAS: STEC) , whose shares have fallen even more than Ocz's. Western Digital, which bought Hitachi's drive business earlier this year, fared a little better, dropping only 25% since June 30.
But Ocz's latest earnings report just the other day showed why it made the right decision. Revenues more than doubled to a record $78.5 million, with solid-state-drive sales increasing 252% from the year ago period. It also earned $0.06 per share this quarter compared with the loss it recorded last year.
It's not necessarily the cheapest of the three -- Western Digital, for example, trades at a much lower multiple to next year's earnings -- but even the Fool's Anders Bylund thinks Ocz has shown that it's taken the right path: "I've seen enough proof of the new strategy's success to trust the new direction, and OCZ shares are trading at just 10.6 times forward earnings today. That's enough to make me invest some of my professional pride in the stock, hence this mid-term "Outperform" rating."
Add the stock to the Fool's free portfolio tracker to keep track of its progress and see whether it can gain more ground on its larger rivals.
A towering opportunity
Delivering business-class 4G high-speed Internet access, Towerstream serves more than a dozen major U.S. cities, including New York, Boston, Los Angeles, and Chicago. Unlike other providers, it doesn't rely on the phone or cable company to deliver that last mile of service. Its one drawback may be that it's a WiMax provider, because whatever benefits the system has, it's been losing out to LTE. Even Sprint Nextel (NYS: S) is building LTE into its WiMax network. The writing is on the wall.
The difficulty is highlighted by the reported bankruptcy filing of privately held Open Range, a WiMax provider in 140 markets. While some speculate that Towerstream could make a bid for Open Range's assets and thus expand its footprint exponentially, Clearwire or some other WiMax provider might consider the assets attractive enough to put in a bid as well, and it's not exactly a good fit with Towerstream's business-centric focus. Open Range provided service to rural communities in 17 states.
The WiMax specialist flies under the radar of most of Wall Street and Main Street, but of the CAPS members who have registered an opinion, 86% look for it to beat the broad market indexes. The All-Star members are more evenly divided on whether it can achieve that goal, but you can let us know your opinion on the Towerstream CAPS page while adding the stock to your watchlist to keep close tabs on its progress.
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 contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Western Digital, Apple, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of and creating bull call spread positions in both Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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