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In music they're called one-hit wonders, singers who belt out a popular tune but are never able to regain the magic of their big hit song. Think Norman Greenbaum's "Spirit in the Sky" or Brownsville Station's "Smokin' in the Boys Room." Monster hits, never to be repeated.
We have seen similar one-hit wonders in stocks. Pets.com and drkoop.com are examples of companies that burst onto the scene -- many while the tech bubble was inflating -- but never lived up to the original promise.
Nostalgia is fun, but what we really want are stocks moving higher and capable of sustaining their momentum. Our MSN CAPS investment community can shed light on the question of which hot stocks might stay that way. CAPS participants rate stocks, and those ratings are one indicator of investor sentiment.
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In the 20 months since we started tracking the community's collective intelligence, the data show that newly minted five-star stocks offer investors the best opportunities. Four-star stocks outperformed the market by 7 percentage points over that period, and five-star stocks -- top honors in CAPS -- fared even better. Stocks with the lowest ratings performed the worst.
The ratings and comments from CAPS members aren't always on the money, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants. As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals.
Let's look at some recently hot stocks, and see how they're rated at CAPS.
| Company | Business | 30-day change | CAPS rating |
|---|---|---|---|
Gold mining | 21.40% | **** | |
Auto dealerships | 32.60% | * | |
Biotechnology | 43.70% | ***** | |
Gold mining | 42.50% | **** | |
Gold mining | 17.70% | **** | |
Technical support | 44.70% | **** | |
X-ray inspection products | 15% | **** | |
Gold mining | 33% | *** | |
Highways, bridges, dams | 17.10% | **** | |
Technical services | 16.30% | **** |
Prospecting for growth
Looking over the list, it's apparent that companies that mine that most precious of commodities -- gold -- have enjoyed a big run-up over the past few weeks, undoubtedly spurred by the continuing crisis in the financial markets.CAPS member "paintjockey" thinks a stake in Kinross Gold (KGC, news, msgs) can complement a retirement plan.
"Hedge against deflation/inflation of dollar," the CAPS participant wrote. "Been on my MSN portfolio for six months. Has its up/down, but a good performer long term. . . . Also metal itself to IRA/retirement plan."
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"With various national governments (including the US) spending like there's no tomorrow, coupled with the prospects of a continued recessionary environment similar to the mid-70s, gold and silver would seem to be the best safe-haven investments right now," TheHuney wrote. "I expect the price of both metals to increase over the next few years."
Will investors still love gold miners tomorrow? The 120,000-strong CAPS community is organized to help investors evaluate this and other questions. CAPS participants have rated more than 5,400 stocks.
Each stock's CAPS page is a good place to start your research; you can find a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made. Turn to member blogs for insight and opinion. And the CAPS stock screener tool lets you find companies that satisfy your investment criteria.
This article was reported and written by Rich Duprey for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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