Top-Rated Stocks the Leaders Have Soured On

Momentum investors 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. Each day, our 65,000-strong investor-intelligence community aggregates ratings not only for thousands of stocks, but also the players who've picked them. The best of those players -- those whom CAPS dubs All-Stars -- consistently outperform their peers over time, earning ratings of 80 or greater.

When an All-Star player sours on a top-rated 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. Think of it as a way to whittle down the 10,000 stocks out there. Read the pitches CAPS investors have written for or against a stock, then dive into the financials.

Here's a list of stocks that earned the thumbs-down from All-Stars:

Almost 4,800 investors have rated these stocks, with an average 93% of them being bullish on their prospects. Yet 95% of the All-Stars also think they'll outperform the market. What might have turned some of CAPS' top players against these otherwise widely admired companies?

A slick look at oil
For example, top-rated CAPS investor leohaas, with a 99.54 rating, writes in his blog that despite long-run trends, oil refiners like Tesoro are still held accountable by short-term factors:

I know all the bullish arguments: no new refineries have been built over the past 30 years in the US, and none are planned for the near future; we keep on buying gas guzzlers and taking on longer commutes; so with limited supply but rising demand, the price of gasoline and with it the profitability of the refiners will continue to go up. That is true for the long run, but if you look at demand over the year, you'll see a different picture: demand is lowest in winter, goes up in the spring, is highest in summer, and declines again in the fall. This is a repeating cycle.

This repeating cycle we also see reflected in the stock price of the refiners, at least to some extent: just take a look at the SUN, TSO, and VLO stock price over the last year. I am speculating a bit here, but strongly believe that the cycle will repeat this year. And I am willing to put my money where my mouth is: I sold most of my VLO stock, and now own a VLO put option expiring in January 2008. Here at CAPS, I have just opened an underperform on the three.

He believes, though, that these factors will turn bullish again by year's end.

Auctioning off opinions
That's not the case with eBay bears like All-Star BrianRuth, who earlier this year noted that the once-nimble Internet auction house has become more stodgy with age:

It's transitioning from a growth stock to a value stock (see Microsoft (NASDAQ:MSFT)). It spent too much on Skype, which won't help it in the short term. I can't see a catalyst for growth unless they buy into a hot concept that takes off (like News Corp. (NYSE:NWS) spending $580 million on MySpace). Organic growth prospects look grim.

Contrast that view with the one this Motley Fool Stock Advisor recommendation garnered from top CAPS player StatsGeek, who sports a perfect 100 player rating. StatsGeek wrote this bull pitch at just about the same time as BrianRuth was waxing bearish:

1) A near monopoly on auctions due to network effects,
2) PayPal -- Solid already but looking to expand into payments by mobile phone
3) Skype -- Everyone thought that was a horrible acquisition. Could it be that everyone was wrong?

Only thing that worries me is Craigslist. I think it is going to continue to take market share from Ebay.

With eBay writing down $1.4 billion on Skype's purchase price, it seems that the bears called that one right. Then again, the $90 million in revenue the division produced last quarter is still worth phoning home for.

Raise your hand
We've heard both sides 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!