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:
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|
30-Day Return
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One-Year Return
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Current CAPS Rating (out of 5)
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Trina Solar (:TSL)
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32.6%
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N/A
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*
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DexCom (:DXCM)
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29.7%
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(38.9%)
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*
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Research In Motion (NASDAQ:RIMM)
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26.0%
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191.2%
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*
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3D Systems (NASDAQ:TDSC)
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24.6%
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30.7%
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*
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SunPower (NASDAQ:SPWR)
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22.6%
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131.6%
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**
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Intac International (NASDAQ:INTN)
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21.3%
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20.2%
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*
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FuelCell Energy (NASDAQ:FCEL)
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20.8%
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(12.8%)
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*
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Data from Motley Fool CAPS as of July 3.
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 prospects for the company have changed for the better, or that it had 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 Trina Solar.
Sunshine on my shoulder
Despite high gas prices and the ever-growing clamor for increased use of alternative energy sources, solar power equipment providers can't seem to buy a break on CAPS. TMFEldrehad, the top player on CAPS, put his solar stake in the ground at the end of last year and said in his Trina Solar pitch: "Let me get this straight... I get to put my red thumb down on alternative energy and the China craze all with one call?"
He did admit that the call was "a bit like playing with fire," and the pick is currently the second-worst call in his CAPS career, but -- for now, at least -- he's hanging onto it. And he's certainly not the only one; overall, 191 of the 460 Fools who have rated the stock think it's going to underperform the market. More recently, CAPS player Elod weighed in on Trina with concerns about the company's future. He cites the availability of polysilicon, the potential for its product to be left in the dust by newer technologies, and the amount of money that the company is borrowing to increase capacity.
So far, the bulls have had their way. Since the close of trading on the first day after Trina's IPO in December of last year, the stock has increased 178%. As noted above, SunPower is up 132% over the last year, and competitor First Solar is up 294% since its November 2006 IPO.
Hot valuations
It's clear that the valuations of many of the solar players are spooking investors. Trina Solar and Rule Breakers pick Suntech Power trade at relatively "reasonable" trailing P/E multiples of less than 70, while SunPower trades at a trailing multiple of 180 and First Solar's P/E is up in the 400s.
The attractiveness (or lack thereof) of the solar stocks depends largely on what you believe is an attainable growth rate for these companies in the foreseeable future. For example, if you think Suntech can grow 45% per year over the next five years like analysts are projecting, then the P/E of 54 isn't as expensive as it seems. The same holds true for Trina, which is projected to grow its EPS 58% this year and more than double it the following year.
With such a small amount of the world's overall power consumption coming from solar, there is certainly plenty of headroom for solar companies to achieve significant growth. The path to making the sun's power a more stable source of our power, though, is not without significant challenges along the way.
So do you think the solar companies have blue skies ahead? Or are they flying too close to the sun right now? 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 stocks listed above -- or any of the 4,700-plus stocks on CAPS.
More CAPS Foolishness:
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 is never going to give you up, it's never going to let you down, and it's definitely never going to run around and desert you.
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