The 5 Scariest Stocks to Own Now

A midday massacre
Recently, one of the stocks in my portfolio -- online gambling payments processor Neteller -- lost 60% of its value in a day. That was on the heels of the passing of a new port security bill that limits payments to online gambling sites from U.S. customers.

Why do I tell you this? Because market massacres occur all the time. They can make some once-promising stocks look downright miserable. Consider this list; each of these stocks sported a five-star rating in Motley Fool CAPS 30 days ago:

Company

CAPS stars

30-day loss

TTM P/E

PEG

Aspreva Pharma. (Nasdaq: ASPV  )

4

(29%)

6.65

0.28

Hittite Microwave (Nasdaq: HITT  )

4

(21%)

34.02

0.99

Charles & Colvard (Nasdaq: CTHR  )

5

(19%)

30.10

N/A

Sanderson Farms (Nasdaq: SAFM  )

2

(18%)

N/A

N/A

Covance (NYSE: CVD  )

5

(14%)

27.24

1.53

Source: Motley Fool CAPS, Yahoo! Finance, Capital IQ (a division of Standard & Poor's)

Value: like garlic for portfolio vampires
Only two of these stocks remain highly rated. The others have lost some of their shine. One, chicken farmer Sanderson, has paid a steep price, losing three full stars -- which may be great news for value investors.

Cheapskates such as Motley Fool Inside Value advisor Philip Durell know that the market tends to oversell the bad and undersell the good. That's why Sanderson, despite 20% of its investors having sold the stock short, has a number of fans in CAPS, including all-star player platoish, who writes:

Too bad CAPS wasn't around for me when the European bird flu panic was at its height. Fortunately, I was able to benefit in real life. What these guys do, can be done by almost anyone with enough capital. How they do it is exemplary. ... This is one of the most transparent and astute management teams in America today.

Time will tell if his enthusiasm will translate into returns. Meanwhile, it's worth asking: how many of the so-called frightful five are permanently haunted? CAPS player Jim2B isn't scared by jeweler Charles & Colvard. His thesis for going long has thus far received 11 recommendations:

[Charles & Colvard] owns the patented rights to a high quality Silicon Carbide (SiC) gem called Moissanite (thus allowing them to create, market, & sell without competition). This crystal is nearly as hard as and more brilliant than diamond. Their patent rights expire in [roughly] 6 years.

[The company's] main problem seems to be a lack of word-of-mouth sales. Usually this problem is a problem due to dissatisfied customers. However, in [Charles & Colvard's] case it's due to customers that are TOO happy with the product. Moissanite is so beautiful that most people mistake it for diamond. Since Moissanite is 1/10 the cost of diamond, most of its owners are happy to let others think it's diamond.

An unpolished gem, perhaps? Eleven of the 12 Fools who pitched Charles & Colvard in CAPS believe the stock is a long-term winner; a bullish sign. But the lone holdout, CAPS player ikkyu2, writes that he's betting against the company not because of the financials, but because it's intending to act as a substitute for real diamonds. My wife might very well agree with his assessment.

Resurrect an undead portfolio
Of course, those are just two notable pitches in a long list related to the frightful five. David Gardner writes enthusiastically in favor of biotech Aspreva, for example.

What about you? Has the market slashed your favorite value stock worse than Jason Voorhees at a teen beach party? Register for CAPS now and tell us about it. In the process, you'll learn from more than 11,000 others who are following stocks Wall Street couldn't care less about. It's absolutely free to join.

Fool contributor Tim Beyers, ranked 2,052 out of 11,827 inMotley Fool CAPS, actually plans to dress as a Fool for Halloween. Tim owns shares of Neteller. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. The Motley Fool's disclosure policy is never spooky.

The Motley Ghoul's Tricks or Treats represents the opinions of each Fool only and should in no way be taken as the opinion of either The Motley Fool, Inc. or any company in question, or as representative of anyone or anything other than that specific Fool's thoughts. So do your homework, and review The Motley Fool's disclosure policy.


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