7 Surprising 1-Star Stocks

Part of being a successful investor is being able to think independently and having a strong enough conviction to stick with your ideas. This can be a difficult enough task when you're looking at a stock that the media and analysts generally like -- after all, in the stock market, there's a seller for every buyer -- but it becomes a far thornier proposition when you're looking at a stock that can't seem to find good press or bullish investors anywhere.

Of course, going against popular opinion has led to great returns for many contrarian investors.

In that spirit, I've headed to the Motley Fool CAPS community to dig up some unloved stocks that have delivered big gains to shareholders over the past month. Our community of investors had given each of these companies a one-star rating -- the lowest possible -- just 30 days ago:

Stock

30-Day Return

One-Year Return

Current CAPS Rating

Mannatech (NASDAQ:MTEX)

45.8%

(49.4%)

*

Trump Entertainment Resorts (NASDAQ:TRMP)

25.5%

(57.8%)

*

Smurfit-Stone Container (NASDAQ:SSCC)

24.9%

15.2%

**

Cardica (NASDAQ:CRDC)

24.8%

140.6%

**

Overstock.com (NASDAQ:OSTK)

22.9%

63.3%

*

Vanda Pharmaceuticals (NASDAQ:VNDA)

21.1%

70.1%

*

Audiovox (NASDAQ:VOXX)

19.4%

(5.5%)

*

Data from Motley Fool CAPS as of Oct. 17, 2007.

Now I'm not recommending that you run out and buy these stocks! Their low ratings are a big, flashing red light. CAPS players have been pretty adept at picking out good stocks, and even better at pointing out bad stocks to avoid. In fact, an index set up to short the least-liked stocks in CAPS has outperformed nearly 96% of all other CAPS players.

In other words, most stocks that are rated with one star in CAPS are likely to underperform. However, CAPS players aren't perfect. They've been overly negative on stocks such as Crocs and DryShips, both of which have delivered seriously impressive returns to their investors.

So the question is whether any of the stocks in that table might be one of those undercover rockets. To kick off your research, here are some of my thoughts on Vanda.

Do research? You're kidding!
That's right, the best way to figure out whether any of these stocks is worth considering for your portfolio (real or CAPS) is to roll up those sleeves and dig in a bit. What we're looking for here are stocks that have good fundamentals despite the lack of popularity -- a profitable business, good management, and some decent growth prospects. When CAPS players (including me!) were busy putting their thumbs down on Crocs, the management team behind the stock was busy building a profitable, growing business.

So with that said, I'm still not convinced that Vanda is going to bring anything to fruition, even though the company is certainly getting creative. Mannatech is just not a business model that is of much interest to me. And I'd be much more inclined to think seriously about Overstock if it could paint its bottom line black.

Chipper chicken
But how about Audiovox? Now you're not going to catch me saying that Audiovox is a high-quality business with a deep moat that will generate industry-beating returns over the next decade. It's just not. But sometimes, for some investors, a mediocre company that's cheap enough can be interesting.

Now that I've said that, if you go back and see Audiovox's trailing P/E of nearly 30, you may think I'm crazy. However, it is also trading at less than 0.7 times its book value, and the stock has historically (since 1993) traded at an average book value multiple of just more than one.

The company has also shown some signs of life lately. In its fiscal second quarter, revenue was up more than 50% year over year and it managed to be profitable on both an operating and net basis versus a loss on both lines for the same quarter in 2006. The company also maintains a relatively strong balance sheet with a low level of debt.

But is it cheap enough? All 44 CAPS All-Stars who rated the stock think it isn't, and have given the stock a thumbs-down. One of them, tcampbellla, simply said that Audiovox is "not too impressive."

So what's your take on Audiovox? Head over to CAPS and let the community of 70,000 Fools 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 5,000-plus stocks on CAPS.

More CAPS Foolishness:


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