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 135,000-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.
| Company | CAPS Rating (Out of 5) | Recent Price | EPS Estimates (Next Year/Year After) |
|---|---|---|---|
| Blackstone Group (NYSE: BX) | *** | $9.13 | $0.33/$0.87 |
| Cymer (Nasdaq: CYMI) | *** | $29.23 | ($0.12)/$1.15 |
| Fuel Systems Solutions (Nasdaq: FSYS) | *** | $19.12 | $1.40/$1.74 |
| Netflix (Nasdaq: NFLX) | *** | $42.19 | $1.72/$2.09 |
| Xerox (NYSE: XRX) | *** | $6.32 | $0.51/$0.69 |
Source: Motley Fool CAPS.
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 pay attention, too.
The sun's always shining somewhere
This isn't the first time Netflix has been the subject of buyout rumors -- and at the hands of Amazon.com (Nasdaq: AMZN), no less. Yet just as previous rumors proved to be just that, the rationale for a buyout this time seems even less grounded in reality.
If Netflix executives had a "grab the cash with both hands" mentality, the scenario might make sense. Amazon is positioning itself to be a top contender for streaming video, and Netflix CEO Reed Hastings has admitted that the death of the DVD will eventually become reality. So getting while the getting's good, when your stock has more than doubled from its low point last October and you're still riding high, might make sense on some level.
Except that Hastings and company haven't shown themselves to be particularly concerned about competing technologies, and no rival has yet managed to knock Netflix from its pedestal. Blockbuster (NYSE: BBI), once a credible threat, today barely clings to relevancy. Amazon, Wal-Mart, and a host of others have tried and failed, too. The closest thing Netflix sees as a threat is plucky kiosk video vendor Redbox, but even then, I wouldn't worry too much. Videophiles are more likely to use Redbox as an adjunct to their Netflix subscription than as a replacement for it. As Foolish comrade Rick Munarriz wrote, Netflix can afford to say "no thank you" to this offer -- should it materialize.
Highly rated CAPS All-Star member TheOriginalBK thinks investors still have plenty of opportunity to profit from Netflix, even at this late stage, in light of the many deals it's putting together.
I am way late to this party, but hey, it's a good party. I am not a huge movie person, I watch maybe 2 a month. I also very rarely know when I'm going to be able to do so. [It's] so nice just to have a movie sitting around ready to watch whenever. And the plans are more reasonable than paying for each movie like cable/dish offerings. With the partnerships for streaming movies developing quickly, I think this party will continue for a while ...
Not everyone is a Netflix partisan, however. CAPS member christian8181 believes that as the value proposition of what cable and satellite have to offer becomes more widespread, the benefit of a Netflix subscription diminishes. "on demand cable, dvr, fierce competition between cable/satellite companies given way to nice promotions, bundle packages cutting costs further ... why do I need Netflix anymore when $10 more each month gives me more value with the cable company?"
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