Surprising Low-Rated Stocks the 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 Warren Buffett's buying railroads, perhaps you should look there, too. Does Bill Miller think financial stocks are beaten down? Maybe investigating more closely will help improve your own results.

Over on Motley Fool CAPS, our top-rated All-Star players represent the best 20% of our more than 79,000 professional and novice investors. To further filter these folks down to the best of the best, I've sought out CAPS players with ratings of 90% or better, then looked for those among them who've chosen one- and two-star stocks to outperform the market. The majority of CAPS investors may consider these stocks losers, but if our ace contrarians think otherwise, these picks might be worth a look.

These five low-rated stocks recently got the nod from the cream of our CAPS All-Stars:

Typically, there's a low-rated stock that has also enjoyed a large one-year run-up in its stock price, leaving me leery. Sure, stocks can continue to run, but these picks' high valuations -- and low ratings -- leave me cold.

This week, Advanced Battery Technology happens to be that stock. It's run up from literal penny-stock status, trading at $0.66, to a current value of just less than $5.00 per share. It also made the jump from the bulletin board listings to the American Stock Exchange. Of course, it traded as high as $9 a stub after its AMEX debut, so we could even say it's trading far below its potential -- but we won't. Even with its recent profitability and some new contracts signed, it still seems a bit speculative.

Go elf yourself
It's hardly a reason to buttress an investment thesis, but the hit "Elf Yourself" holiday website from OfficeMax does raise the company's profile. (Elfing ends today.) Office supply retail has grown into a $260 billion business, including OfficeMax's two primary rivals, Staples (Nasdaq: SPLS) and Office Depot (NYSE: ODP). With 934 stores between the U.S. and Mexico, it lags the larger Staples, which operates more than twice as many storefronts.

Still, OfficeMax is a turnaround in progress, and it was able to post slight increases in same-store sales, even in the difficult retail environment. A number of one-time items also boosted profits, but there seems to be opportunity for future growth here.

Considering how it has performed in the past, it's not easy finding backers for OfficeMax on CAPS. The support it does have tends to be lukewarm, like that from All-Star chk999, who gave this not-so-enthusiastic recommendation last year: "Just guessing that this is oversold and will float back up."

Unfortunately, it continued to float down for the rest of the year. Perhaps that's why CAPS investor chukimaster gets a laugh from giving it a thumbs-up: "10 year all time low. 2008 should do well."

Time will tell who gets the last laugh. Right now, CAPS All-Stars are betting against OfficeMax successfully turning around by about 3 to 2.

Finding value under rocks
So there you have it -- five low-rated laggards that have gotten big endorsements from some of the best and brightest investors in the CAPS community. If you want to add your two cents on these or any other firms, sign up to join Motley Fool CAPS, absolutely free.