7 Surprising 1-Star Stocks

Surprises are part of the game when it comes to picking stocks. Sometimes this can mean bad news, like one of your top stocks revealing that management has been backdating options.

Other times, though, the market gets caught off guard by positive surprises from stocks that most investors thought were down for the count. In this situation, investors who stood by the stock often break out into a chorus of "I told you so," as short sellers are forced to figure out just how much pain they can take.

To dig up some of these unloved stocks that have been defying naysayers, I'm turning once again to The Motley Fool's CAPS community. Each of the companies below had been given a one-star rating (the lowest) by our community of investors just 30 days ago:

It's important to remember that some of these stocks -- particularly the smaller, more volatile ones -- could just as easily reverse these big gains over the next 30 days. In some cases, though, the strength could be a sign that the company's prospects have changed for the better, or that it has been beaten down just a little too far.

So the question with these stocks is: Are they better than CAPS players had thought, or are they just singing that proverbial swan song? The best way to get a feel for where these guys are headed is to dig in and do some research. I thought I'd kick you off with some thoughts on one of these stocks: SulphCo.

My Us Weekly substitute
Reading over SulphCo's history is so juicy that I may not need to pick up the latest Us Weekly to get my dose of Britney.

From the 5,000-foot glance, SulphCo's work is pretty darn interesting. The company works with ultrasonics (sound waves) to "upgrade" crude oil. They call the process Sonocracking, and it reduces the relative density and viscosity of the oil while also reducing the sulfur and nitrogen content. For lack of a more scientific explanation, they are trying to make better oil.

So far, though, the company has not gotten the technology to the point where it can actually sell anything per se. Since 1999, the company has produced basically zero revenue, and at year-end 2006, it had a $71 million accumulated deficit sitting in its account of shareholder deficiency. It's been a furious cash burner, going through $54 million since its inception, and has financed itself primarily by issuing more than $60 million worth of stock and warrants.

More interesting still is the fact that the company was able to win investors' imaginations for a while. From the beginning of 2004 to the end of 2005, the stock drifted up and more than doubled. Then, in November 2005, apparently spurred by a rash of promising press releases and a positive BusinessWeek article, the stock went en fuego, nearly quintupling by the time January hit.

That fire was quashed with extreme prejudice when Barron's writer Bill Alpert dug up the SulphCo rabbit hole. In brief, he found that the company's founder, Rudolph Gunnerman, had a history full of high hopes and angry investors, and that the technology the company is working on is questionable at best. The story hit home, and by the end of January, the stock had been more than cut in half.

More recently, with the stock at about half of where it was at the end of January '06, the Gunnermans (Rudolph's son Peter was the president of the company) had a run-in with the board of directors regarding proposed amendments to the company's bylaws. The tiff ended with Peter resigning and Rudolph being kicked out of his CEO and chairman posts.

With new management in place and a continued steady stream of press-release updates, the stock has gained back some ground in the last month. Despite that, CAPS players remain resoundingly negative on it:

• ShuntSD: "This is a train wreck waiting to happen. Phony claims of technology advances, phony experts within the company, no revenue, no way for them to capitalize."
• Chk999: "I don't think their oil upgrade technology actually works. And if that's the case, this is not going to be a good investment."
• Allstar13913: "This stock is a fraud. The Sonocracking technology is worthless. The largest stockholder uses a 'Dr.' before his name that he's never earned. No respectable company wants to work with them. This company will be bankrupt before long."

Overall, the company has been rated by 251 CAPS players, with a resounding 200 giving SulphCo the big red thumbs-down versus only 51 who see the silver lining.

Do you see something at SulphCo that everyone else is missing? Head over to CAPS and let the community know what you think. While you're there, you can start your research on any of the other six stocks listed above -- or any of the 4,200-plus stocks on CAPS.

More CAPS Foolishness:

• 5 More Turnaround Stocks
• 3 More Stocks Lowering Guidance
• 7 Highly Rated Stocks on Sale

Think you can pitch your favorite stock -- or ditch your least favorite one -- in 27 seconds or less? That's exactly what we're doing over at Motley Fool CAPS! Come check out our new 27-second stock pitches.

Fool contributor Matt Koppenheffer didn't see these particular moves coming, but he's rarely surprised at Mr. Market's general tomfoolery. You can check out Matt's CAPS portfolio here, or visit his blog. He does not own shares of any of the companies mentioned. The Fool's disclosure policy can upgrade crude oil quality using its wicked Jedi powers.