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 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.
Annaly Capital Management (NYS: NLY)
DragonWave (NAS: DRWI)
Wal-Mart (NYS: WMT)
Source: Motley Fool CAPS; Yahoo! Finance. NM = not meaningful; DragonWave is expected to go from a loss in fiscal 2012 to a profit in fiscal 2013.
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.
The REIT stuff
As economic crises spread across Europe, protracted joblessness remains entrenched here, and malaise everywhere is a concern, a further collapse of the yield curve or spread is likely to affect more acutely mortgage REITs that carry extensive leverage on their balance sheets. Some mREITs, like Newcastle Investment (NYS: NCT) , have sky-high debt-to-equity ratios. But others, like Annaly Capital Management, carry lower risk, as Annaly has steadily seen its debt-to-equity ratio drop in recent quarters.
Yet with the government backstopping investments in agency-backed securities, the risk of default remains extremely low. And CAPS member pugnaciously says that with the Fed guaranteeing a low interest rate environment for some time to come, Annaly is best positioned to capitalize on it:
The dividend is outstanding right now, since the share price has slipped a little bit, over 16%. There is no need to go bigger game hunting for dividends, since you'll end up with something over-leveraged and much riskier, only to earn a few extra potential points on the dividend.
Let us know in the comments section below or on the Annaly Capital Management CAPS page whether its moves have reduced its risk, and then add it to your watchlist to see whether it pulls it off.
You can't hear me now
The decision by the Nokia (NYS: NOK) joint venture with Siemens to slash 17,000 jobs likely caught DragonWave by surprise, considering it is buying the JV's microwave backhaul operations for $20 million. Nokia Siemens Networks was to be a major customer of DragonWave, hopefully filling the void left by the loss of business from Clearwire (NAS: CLWR) .
DragonWave was looking for the NSN business to help boost sales significantly, but with the Nokia sales staff getting slashed, it may be harder to achieve that.
The CAPS community had held out hopes for DragonWave as well, with 95% of those weighing in on the backhaul specialist rating it to outperform the market. Add the stock to the Fool's free portfolio tracker to keep track of its progress and see whether it's fit to be included in a real-life portfolio.
Great wall of India
Wal-Mart is the world's largest retailer by sales, and runs stores in 28 countries. That international growth had included targeting India, but found the door slamming shut there as the scandal-ridden government backtracked after opposition mounted to allowing it in.
It's not just Wal-Mart the opposition doesn't want, but any foreign investment. The proposal to open India's retail markets would have allowed single-brand retailers like Nike (NYS: NKE) to wholly own Indian businesses; multibrand outlets like Wal-Mart would have been limited to 51%. It's not unheard of, though, as China also has rules in place limiting foreign ownership of certain key industries. Retail hasn't been one of those, however, and Wal-Mart operates almost 200 stores in more than 100 Chinese cities.
Over five years ago, I marked Wal-Mart on CAPS to outperform Wall Street, believing the long-term trend of getting great value would resonate with consumers. My pick is winning today, and I continue to expect it to do so. Many people have an irrational dislike of the company, but you can let us know your opinion on the Wal-Mart 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 Dupreyowns shares of Nike, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Wal-Mart and Annaly.Motley Fool newsletter serviceshave recommended buying shares of Nike, Annaly, and Wal-Mart, as well as creating diagonal call positions on Nike and Wal-Mart. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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