5-Star Stocks Leaders Have Soured On

Momentum investors are stock players who get behind companies that have the wind in their sails. Contrarian investors typically pick up the cigar butts that the market has tossed aside. So what do you call investors who turn against winners? Sourpusses? Shorts?

Over on Motley Fool CAPS, we sometimes call them the savviest investors around. Not only does the 60,000-strong investor intelligence community rate thousands of stocks every day, but the players themselves get rated, too. The best of the lot -- what CAPS calls All-Stars -- consistently outperform their peers over time and are assigned ratings of 80 or greater.

When an All-Star player sours on a top-rated five-star stock, perhaps we should take notice. Maybe they've uncovered the chink in the highflier's armor. It could be they've found a question mark in the company's financial statement footnotes, or maybe it's just a hunch. That's why we say these tables are not lists of stocks to buy or sell, but rather starting points for further research. With about 10,000 stocks in the universe to choose from, this list can drastically whittle down that number. Read the pitches for or against a stock the investors write, and then dive into the financials.

Here's the list of stocks that the all-stars of the All-Stars -- those with player ratings of 90 or better -- have put the frowny face on.

Nearly 2,000 investors have rated these stocks, with an average 98% of them being bullish on their prospects, with a like number of the All-Stars also thinking they'll outperform the market, too. What might have turned these top players against these otherwise widely admired companies?

Out of the LOOP in real estate
When you look at the one-year return, you might think that the near doubling of LoopNet's stock played a part in going negative, and, in fact, All-Star BrianRuth does think valuation is a concern, particularly in today's market:

High P/E and real estate market exposure looks like a sure way to lose market cap.

Yet LoopNet is in the commercial real estate market, not residential, and the exposure that companies have to the two is completely different. It's not really a fair comparison to put LoopNet in the same circle as homebuilders Beazer Homes (NYSE:BZH) and Hovnanian (NYSE:HOV), or even with a listing company like HouseValues (NASDAQ:SOLD). As LCDRMBH points out, other metrics make LoopNet look strong still:

Profit margin 31%, operating margin 42%. Quarterly revenue growth 46% YOY, Quarterly Earnings growth 48% YOY. Peg 1.3. Intrinsic value estimate around $40, DCF estimate $39, current price at $18. Leader and rapidly growing in the emerging field of online commercial real estate. Best of all, NO DEBT.

A slick opportunity
Top-rated All-Star freunddoggy also thinks Hercules has great potential, particularly in light of its recent acquisition of Todco, as he points out in his CAPS blog notes:

Hercules off-shore is probably my least favorite of my favorite. This company provides offshore drilling services to the oil industry. As it becomes more difficult to find onshore oil, offshore drilling will get a huge boost. Hercules has a PEG of .21 as of the time of this blog. They just bought Todco, which was also another fantastically undervalued driller. Hercules has some serious potential to become a 10+ billion dollar company.

Water, water everywhere ...
Of any of the top-rated companies looking to fall, drilling and construction services company Layne Christensen may be the one to take a drink in. Despite burgeoning infrastructure needs throughout the country, particularly in water systems, it's an industry slow to improve because of government inertia. Its mineral drilling and natural gas divisions might be better off, though both are also subject to whims of market demand.

Still, Layne is set to report earnings this month that should be strong. Over the past five years, it has posted 80% growth in earnings per share. Moreover, first-quarter revenues were up 29%, while the company posted earnings that were 73% better than last year. Maybe it will have a hard time topping that sequentially, but year-over-year output might still be stunning.

It could be why there's only one CAPS player who sees Layne underperforming the market and why he has yet to set down a reason for his dour outlook. While the stock has enjoyed very good one-year appreciation, it seems a tough play to bet against.

Raise your hand
We've heard both the bull and bear arguments here, but Motley Fool CAPS is more than what some pros think, even if they're All-Stars. It's where we invite you to share your thoughts and insights and add your voice to the debate. Go ahead, have your say. We're eagerly waiting!

LoopNet and Hercules Offshore are recommendations of Motley Fool Hidden Gems. LoopNet is also a recommendation of Motley Fool Rule Breakers. HouseValues is a former Hidden Gems recommendation.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.