7 Surprising Low-Rated Stocks

Successful investing requires you to think independently and stick to your convictions. That's hard enough with stocks that are generally popular -- after all, in the stock market, there's a seller for every buyer. But it gets even tougher with stocks that can't seem to find good press or bullish investors anywhere. Of course, defying popular opinion has led many contrarian investors to great returns.

In that spirit, I've headed to Motley Fool CAPS to dig up some unloved stocks that have delivered big gains to shareholders over the past month. Our community of investors has put each of these companies on the bottom two rungs of the CAPS rating scale:

Stock

30-Day Return

One-Year Return

Current CAPS Rating

CompuCredit (Nasdaq: CCRT  )

33.8%

(62%)

**

Hovnanian Enterprises (NYSE: HOV  )

22%

(72.3%)

*

Circuit City (NYSE: CC  )

24.8%

(73.5%)

*

KB Home (NYSE: KBH  )

16.6%

(49.9%)

*

D.R. Horton (NYSE: DHI  )

18.6%

(42.3%)

*

Thornburg Mortgage (NYSE: TMA  )

17.3%

(56.4%)

**

Toll Brothers (NYSE: TOL  )

9.6%

(32.2%)

*

Data from Motley Fool CAPS as of Jan. 30.

Now, given CAPS' knack for accurately gauging winners and losers, I'm not recommending that you run out and buy these stocks! An index set up to short CAPS' least-liked stocks has outperformed over 98% of all other CAPS players. That said, CAPS players have proved overly negative on high-performing stocks such as Crocs and DryShips. Are any of the stocks in the table above the same sort of undercover rockets?

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.

It's tough to predict what the fundamentals of homebuilders are going to look like in the coming year, or even the coming few years. But that hasn't stopped investors from taking the plunge over the past month, since the U.S. Federal Reserve has been very aggressively loosening monetary policy. The theory here seems to be that as interest rates come down, people will suddenly forget that U.S. housing is overvalued and start buying again.

Call me skeptical.

The size and veracity of the thrashing homebuilder stocks have taken over the past year, however, has created the potential that some of these stocks are undervalued, even if the next couple years are nasty. That doesn't mean I'm interested in indiscriminately chasing after beaten-down homebuilders. Instead, I'd focus on the strongest names in the sector, even if they haven't dropped as much. In the list above, I'd put Toll Brothers and KB Home in that "better than bad" category.

On CAPS, both stocks still carry a lowly one-star rating. There are some pockets of positive sentiment mixed in, though. CAPS All-Star Madmykl gave Toll Brothers a thumbs-up back in September and noted:

I really don't like these guys, but guess what. ... They are still turning a profit in the midst of such a horrible downturn in the housing market (and still have a positive [return on equity]). They will survive while the others won't. ... I'll probably lose in the short term (months, maybe the next year or two) but in the long term this one will far outpace the market.

So what's your take on this group? Is there more value here than I've concluded? Head over to CAPS and let the community of over 83,000 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 5,300-plus stocks on CAPS.

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