Top-Rated Stocks the Leaders Loathe

Momentum investors love to back companies with the wind in their sails. Contrarian investors typically pick up the cigar butts 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. When one of our All-Star players -- those whose stock-picking prowess places them in at least the 80th percentile of our community -- sours on a top-rated stock, maybe we should take notice. Perhaps the player has found a chink in that highflier's armor or a question mark in its financial footnotes. Or maybe it's just a hunch. That's why these tables aren't lists of stocks to buy or sell -- just starting points for further research.

Here are a few stocks that some of our All-Stars have recently spurned.

Considering that, on average, 96% of the investors rating these companies think they will outperform the market, what might have turned some of CAPS' top players against them?

Riding the Reading
Betting against the Oracle of Omaha is a tough game to play, yet despite Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) decision to increase its ownership stake to more than 18% in Burlington Northern, some investors are not convinced that a mature, cyclical industry like railroads is such a good investment. Though it's true that Warren Buffett is making a big investment here, he's also reduced holdings in Norfolk Southern (NYSE: NSC) and Union Pacific while doing so.

Ever since Buffett made news by buying railroads, the better bet has been Union Pacific, which has risen more than 24% over the past year. Of course, Buffett's latest purchase, disclosed just two weeks ago, is up 15% already, but that could be because investors want to emulate his purchases.

So why might some of the best CAPS investors want to bet against Buffett? Because the near-term railroad outlook does hold some challenges. The economy is soft, diesel fuel prices rose some 50% during 2007, and total carloads were off 2.5% in 2007 while total volume was down 1%, according to the Association of American Railroads.

When top-rated CAPS All-Star xthecritic gave Burlington Northern the thumbs-down last October, he noted that although railroads were reporting good numbers, their prices already reflected the good news.

Railroads reporting great Q3 numbers in the face of all time high fuel costs and a slowing economy. The stocks are fully valued with the earnings celebrations. I think the party is over and we will be finding that out over the next couple quarters. Trains are cyclical stocks -- let's ride this train south.

CAPS investor NicieNicie also discussed that point last August while pointing out that the cyclicality of railroads and their huge capital costs make them a tough investment.

BNI is a wonderful company ... BUT -- be aware that the RR's are a "mature cyclical" by nature and that the P/E in the mid-teens, while rosy for a stock with growth potential (drug, consumer staples) belies the fact that RR's aren't a terribly good investment most of the time. ... Railroads have HUGE capital requirements, upgrading the motive power, advertising, drawing new logistics, and most of all fixing the constantly pounded main lines.

Make lemonade from lemons
We've seen what some of the All-Stars think about the direction these companies are heading, but Motley Fool CAPS is more than what everyone else thinks. 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!