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 mercury leap.
Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions 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.
CAPS Rating (out of 5 max)
EPS Growth Next Year
|Alcatel-Lucent (NYS: ALU)||****||$2.43||19%|
|YM BioSciences (NYS: YMI)||****||$1.95||(14%)|
Source: Motley Fool CAPS; NM = not meaningful.
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
According to Cisco (NAS: CSCO) , mobile-data traffic growth doubled for the fourth year in a row last year with smartphone usage tripling even though as of 2012, basic handsets still account for 88% of the devices on the market. That said, smartphones represent 82% of total handset traffic. What that portends is that mobile-data traffic will increase 18-fold by 2016 and as 4G networks multiply, it will represent more than one-third of all traffic, with smartphones alone generating a 17-fold increase in traffic.
Those kinds of numbers represent huge upside potential for Alcatel-Lucent, which owns 20% of the long-term evolution market, but more importantly, to meet the massive demands placed on the networks, they're going to have to move to small-cell wireless technology. Alcatel holds 25 mobile operator commercial femtocell deployment agreements whose importance only grows as the industry moves further away from 3G and closer to higher capacity 4G and LTE, especially in urban environments. It's why I'm rating Alcatel to outperform on CAPS.
Of course, the risk is that competitors and other technologies are swarming in on the opportunity as well. Cisco, for example, recently announced its "small-cell gateway" and AT&T (NYS: T) will be testing out small cells in its network sometime this year. But it is Alcatel's dominance here that attracts CAPS member rymico:
Owner of many important patents and will be a key player in the transition by wireless carriers to smaller and more frequent cell sizes which will better handle today's data rich mobile world.
Tell me in the comments section below or on the Alcatel-Lucent CAPS page if going smaller is the key to growing bigger, then add it to your Watchlist to see how it handles the competitive pressure against its rivals.
Biotech YM BioSciences has been riding the success of its clinical trials with its JAK1 and JAK2 Inhibitor CYT387, a once-a-day treatment for myelofibrosis. Even after the recent pullback in its shares, partially as a result of a follow-on offering, YM still trades 18% higher so far this year than last.
As a once-a-day regimen, CYT387 has a better profile than Incyte's (NAS: INCY) twice-daily Jakafi program, but it's got to be admitted that it's still in the early testing stages, while Jakafi is already on the market and getting assistance from Novartis in marketing it globally.
YM got a boost for the "significant and durable responses" in ongoing phase 1 and phase 2 trials, but there's still a very long road before it ever gets to market. Regardless, analysts believe YM is undervalued based on its potential for addressing myelofibrosis, let alone other indications. That could lead to some other pharma giant coming in and wanting to partner with it -- or an acquisition is always a possibility. With pharmaceuticals facing anemic pipelines ahead of the patent cliff, buying new drugs is an easy way to achieve growth.
Of the 30 CAPS All-Stars weighing in on the biotech, only one thinks it won't outperform the market indexes. Add YM BioSciences to the Fool's free portfolio tracker to see who if anyone comes along to bolster its prospects.
Checking the mercury
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At the time this article was published Fool contributor Rich Duprey owns shares of Cisco Systems, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio.The Motley Fool owns shares of Cisco Systems. Motley Fool newsletter services have recommended buying shares of Novartis. 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.
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