These Cold Stocks Are Heating Up
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.
Estimated EPS Growth Next Year
|Alcatel-Lucent (NYS: ALU)||***||$2.94||44%|
|Majesco Entertainment (NAS: COOL)||***||$3.24||10%|
|Sify Technologies (NAS: SIFY)||***||$3.33||NA|
Sources: Motley Fool CAPS, Yahoo! Finance. NA = not available.
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.
Fighting the Cisco kid
How much business is Cisco (NAS: CSCO) still losing to rivals Juniper Networks (NYS: JNPR) or Alcatel-Lucent? While Juniper saw "strong customer interest" in its data-center business in its latest quarter, Cisco has been pushing back against encroachments with enhanced product introductions of its own, particularly to combat Hewlett-Packard's additions to its data-center switches, but says it can double the number of servers supported by either Juniper or Alcatel.
Alcatel hasn't been profitable in any of the five years since its 2006 merger with Lucent, but this year, it is looking to break that barrier, with analysts forecasting $0.32 per share in earnings and 44% profit growth the year after. Highly rated CAPS All-Star traviskang says not only is the market not pricing any growth into the valuation, but investors are marking it as if it's going to run into bankruptcy.
Share your thoughts on the Alcatel-Lucent CAPS page if you think it can achieve its profit goals, and then put it on your Watchlist to keep track of its progress.
Majesco Entertainment is building on the boom in motion-capture generated by Microsoft's (NAS: MSFT) Kinect, introducing games like Hulk Hogan's Main Event, Motion Explosion!, and Twister Mania!, which takes the original Twister game and digitalizes it for the motion-based platform.
But you really need to focus on Zumba, Majesco's premier franchise that accounted for 80% of its revenues in its most recent quarter. Majesco's going to live and die by that franchise, and though I like what the company's doing, I think Zumba's shelf life is rapidly approaching its expiration date.
Majesco's revenues nearly tripled year-over-year in the second quarter because of Zumba sales, but they were up just 60% in the third. While that sounds like a lot, it also represents a significant slowdown in growth. That may be why Majesco is branching out into other games, but none yet has the proven track record of the fitness-craze platform, and that should be worrisome for investors. When Zumba goes cold, Majesco's stock will hit the deep freeze.
CAPS member Timoteo57 would disagree, at least about Zumba's expiring, since the coming second installment might keep the franchise going: "Low debt computer game company with some franchise names that keep giving while very promising ones in the pipe and just picking up (Zumba Fitness). ... It's gonna possibly triple by summer if ... IF the ZF game takes off like it seems to be since [its] launch with very improved update to be released before Xmas."
Add the stock to the Fool's free portfolio tracker to keep track of its progress and see whether it's still fit to be included in a real-life portfolio.
India wants the Internet!
Indian Internet and e-commerce specialist Sify Technologies, along with fellow Indian Internet portal Rediff.com (NAS: REDF) , has been counting on a burgeoning population and a government intent on spending a lot of money to increase broadband access. There have been a lot of headlines about China's cooling economy, and while not generating the same page views as its Oriental BRIC member, India is also feeling the fallout of the global economic slowdown. Economists now see GDP there growing at just over 7% this year, down from 8.5% in 2010. It gets even worse for 2012, with just 6.2% growth forecasted.
Sify flies under the radar of most of Wall Street, but of those CAPS members who have registered an opinion, 91% look for it to beat the broad market indexes, with even the All-Star members weighing in favorably on its achieving that goal. You can let us know your opinion on the Sify Technologies CAPS page while adding the stock to your watchlist to keep close tabs on its progress.
At the time this article was published Fool contributorRich Dupreyowns shares of Cisco Systems, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Microsoft and Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Microsoft and Cisco Systems, as well as creating a bull call spread position in Microsoft. 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.