Surprising Low-Rated Stocks Leaders Love

Piggybacking on the picks of great investors and money managers can often lead to big rewards -- especially when the stocks in question are beaten down.

If you'd bought Ingersoll-Rand when Warren Buffett announced his small stake in this industrial company last February, you'd be enjoying a roughly 20% gain so far. You'd be up another 40% if you'd followed David Dreman of Dreman Value Management into aerospace and industrial products manufacturer Barnes Group at the end of March.

Over on Motley Fool CAPS, more than 65,000 professional and novice investors have rated more than 5,000 stocks, indicating whether they think those companies will beat the market or lose to it. The best investors, those who consistently outperform their peers, are considered All-Stars. They might not match Buffett, Lynch, or Dreman yet, but their records are remarkable all the same.

The best of the best
All-Stars each boast a CAPS rating of 80% or more. That's plenty good, but I wanted to see which companies the very best All-Stars were choosing. I searched CAPS for players with a rating of 90% or better. Then I searched through this set of players to see who'd chosen one- and two-star stocks to outperform the market.

Why low-rated stocks? Just like the players, the stocks receive ratings, from one to five stars. The majority of CAPS investors may think these stocks are dogs, but our top All-Stars believe they'll have their day. It's a typical contrarian investor concept -- what value investing legend Benjamin Graham called "picking up cigar butts."

These four one-star stocks have gotten the nod from the cream of our CAPS All-Stars:

Typically there is a low-rated stock that's also enjoyed a large one-year run-up in its stock price, which leaves me leery of considering it as a possible investment. Not that stocks can't continue to run, but their high valuations -- with their low ratings -- leave me a little cold. It's a bit different this week.

While Antigenics' stock is up more than 48% over the past 12 months, I'm not so certain that this stock can't continue to rise. It has some promising cancer treatments in late-stage clinical trials, but there's also the chance that this could become the next Dendreon (NASDAQ:DNDN): a company that showed potential but ultimately flamed out when the FDA rejected marketing its drug Provenge. Negotiating the shoals of FDA cancer drug approvals is tricky indeed.

That was one of the points raised by Ernbo6 in his top bear pitch against Antigenics.

Antigenics Inc. is a biotechnology company developing technologies and products to treat cancers, infectious diseases and autoimmune disorders, primarily based on immunological approaches. Its advanced product candidate is Oncophage (vitespen, formerly HSPPC-96), a personalized therapeutic cancer vaccine candidate being tested for several cancer indications ... including in Phase III clinical trials for the treatment of renal cell carcinoma and for metastatic melanoma. ... Put this on a watchlist ... keep looking for the updates since this can be another Dendreon.

Even the bulls acknowledge the riskiness of an investment here, but a few note that there's been insider buying, which perhaps foretells some positive news. As Peter Lynch has noted, insiders can sell for any number of reasons, but they buy for only one: They think the stock will go up.

CAPS player kc4ck says as much when he notes, "At this price there is not much to lose, and it could really run in the long term. I also like to see insider buying." That's seconded by CAPS investor StatsGeek, who boasts a perfect 100.00 player rating: "A quant model pick. I like the insider buying and how disliked this company is."

Finding value under rocks
So there you have it, four low-rated laggards that have gotten a big endorsement from some of the best and brightest investors in the CAPS community. What do you have to say? Will Antigenics be the next big thing or just another waning wannabe? If you want to add your two cents, sign up to join the Motley Fool CAPS community, which is 100% free.