Unloved Stocks Ready to Shine

Think of investor sentiment as a pendulum that swings in tandem with a company's share price. When investors begin to think highly of your company, its stock might also start heading in the right direction. Alas, you can rarely tell when investors are warming to a stock until after it's made that upward swing.

An astrolabe for investors
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 85,000-plus investors, offer a great way to monitor investor sentiment. Like astronomers scanning the skies, investors can follow a stock's stars through its CAPS rating trend, tracking investor sentiment to help determine the best time to invest. Let's look at one- or two-star-rated companies that have recently enjoyed a bump in investor confidence, and see whether the stars are really aligning in their favor.

Company	CAPS Rating	Recent Price	1-Year Return
Netflix (Nasdaq: NFLX)	***	$31.26	48.4%
Reliant Energy	***	$24.43	38.2%
McMoRan Exploration (NYSE: MMR)	***	$17.84	29.1%
Aware (Nasdaq: AWRE)	***	$4.30	(23.5%)
Answers (Nasdaq: ANSW)	***	$5.84	(55%)

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too.

Picture this
In the world of video rentals, it's been a long time since Motley Fool Stock Advisor recommendation Netflix has generated much respect among analysts or the investing public. Seems there was always some hurdle just before the online movie hall that was set to topple it from its throne of industry leadership: the demise of DVDs, the advent of video-on-demand, and a host of possible competitors -- including Blockbuster (NYSE: BBI) and retail rivals like Wal-Mart (NYSE: WMT) and Amazon.com (NYSE: AMZN)

Yet at each turn, Netflix has surprised. At least it's surprised the naysayers. True believers have seen the potential for monster growth at each step. Netflix has been a featured selection several times at Stock Advisor, and subscribers who followed each recommendation are currently enjoying returns for each in excess of 76%, compared to an average of just 1.3% for the S&P 500 for each. Through it all, Netflix has continued to add new members, even if customer churn remains a little high. With its latest earnings report again beating expectations, the stock -- and investor sentiment -- is on the rise.

CAPS investors, while overwhelmingly in favor of Netflix beating the market (80% of all investors and 84% of CAPS All-Stars say it will outperform), are very passionate in their beliefs in the company's potential. It's either able to continue growing and fend off all competitors, or it's doomed to be an asterisk in movie-industry progression.

CAPS player travels68 thought last Christmas that the movie rental firm will adapt to the newest technologies that arise, including video-on-demand, which it currently offers in its Watch Instantly feature.

I'm a professional network engineer ... and the bottom line is that the quality of the video experience delivered via physical media will continue to outperform the capacity of networked video delivery. As network capacity grows so too will the latest video and audio capabilities of physical the media on which films are delivered, keeping it a step ahead... Add to all of this the lead that Netflix has with it's online community, recommendations engine, and VOD service and I don't see a short or medium term catalyst to the downside.

On the other side are investors like mattro88, who wrote early this month that the cable and phone companies will have an advantage over Netflix that it simply won't be able to beat.

[L]ong term, people ... will download [movies] to their DVR players. Comcast (On Demand), Verizon, and similar cable/Internet providers will win the movie rental war. Think about it... With On Demand, you get it immediately, on your TV, where you want it. Cable providers are getting people hooked on DVR through free trial periods. At the same time, the On Demand libraries are growing. There may be a niche market for computer movie downloads ... but Apple has a leg up there. In ten years Netflix will be nothing more than the answer to a trivia question.

Shine your starlight
So is Netflix the next star to shine for investors? Well, we haven't yet heard from you, and at Motley Fool CAPS, every investor's opinion counts. Your voice could determine whether these stocks become shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?