Whenever you see hot stocks picking up the pace, it’s often because the fundamentals attract the attention of big-money investors.

However, investors should be aware that this isn’t always the case. Many times, hot stocks move based on stories, rumors or themes, even though at the same time, the fundamentals are screaming “go elsewhere!” And what happens when those fundamentals are eventually reflected in the stock price? You suffer a fast, steep loss as the smart money — who can trade much more quickly than you — moves onto the better picks.

Fortunately, if you keep your eyes off the biggest headlines of the day, using Portfolio Grader can help you separate the real winners from the short-term pretenders.

Hot Stocks, Bad Grades – Madison Square Garden (MSG)

Madison Square Garden (MSG) is an example of a stock that has been driven higher recently by a good story.

If the L.A. Clippers are worth $2 billion, just imagine what the combined package of the New York Knicks, New York Rangers and New York Liberty must be worth! Throw in the iconic namesake sports arena and Radio City Music Hall, and you have a great collection of assets worth billions of dollars.

Such speculation has driven MSG stock up more than 15% in the past month. But the truth is the fundamentals do not justify this type of rally.

Madison Square Garden posted a huge negative earning surprise in the first quarter and Portfolio Grader has MSG stock ranked as a “sell,” via an overall “D” grade, right now.

Buying MSG stock today is just a bet on the value of the basketball team, and I do not see any sign that the team is for sale right now.

Hot Stocks, Bad Grades – Watts Water Technology (WTS)

Water has been a favorite investment theme for many investors the past few years. After all, we are running out of clean water in many parts of the world, and many analysts predict a severe shortage of water in our future. As a result, investors have gobbled up water-related stocks to take advantage of the long-term theme.

Reality check: Not all water companies have the fundamentals to support the stock increase.

Watts Water Technology (WTS), for instance, has benefited from the theme, but again, the fundamentals do not justify the roughly 30% price increase in WTS stock over the past year. Watts Water has posted three consecutive earnings disappointments, and Portfolio Grader has given WTS stock a “D” grade since January. Watts Water is a “sell” at current prices.

Hot Stocks, Bad Grades – Community Health Systems (CYH)

Community Health Systems (CYH) has seen its share prices jump by more than 17% in the past three months as announcements of increased Medicare coverage in one of its major markets attracted traders to the stock.

The truth is that the fundamentals right now do not support such a strong move in the stock. Analysts have been lowering their estimates for Community Health Systems, and CYH stock earns a “D” in Portfolio Grader. In spite of the short-term news and rumor-driven moves recently, Community Health Systems is a “sell” at the current price.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth,Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of this newsletters.