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 110,000-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 (out of 5 max)

Recent Price

Next Est. Year EPS Growth

Canadian Solar (Nasdaq: CSIQ  )

***

$32.40

51%

Coca-Cola Enterprises (NYSE: CCE  )

***

$16.36

8%

Micron Technology (NYSE: MU  )

***

$5.44

93%

STEC (Nasdaq: STEC  )

***

$10.22

97%

ZymoGenetics (Nasdaq: ZGEN  )

***

$8.60

22%

Source: Motley Fool CAPS, Yahoo! Finance.

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. 

Canada, no vas?
The solar industry got burned recently, after Spain mulled whether to cap subsidies on solar installations, reducing payments based on where a panel was installed. If that policy is adopted, Canadian Solar, which realizes about 15% of its revenue from Spain, might fare worse than rivals with lower exposure to that country, such as First Solar (Nasdaq: FSLR  ) . However, Suntech Power (NYSE: STP  ) , the largest solar company in that country, would probably fare the worst; 34% of its revenue comes from the Iberian peninsula.

Still, investors remain bullish on Canadian Solar's prospects. It recently signed five deals in Italy and the Czech Republic, diversifying its geographic base. Yet as CAPS investor hagrin believes, the November elections may play a pivotal role in the outcome of Canadian Solar and the other alt-energy stocks:

This was another pick in my list of discounted solar picks. As we get closer to the November elections, look for solar stocks to do very well - especially as oil and gas prices continue to rise out of control. Everyone is clamoring for cheaper, cleaner energy and almost every solar company will profit from these demands - especially as ethanol falters (in my opinion).

Remember this
The semiconductor manufacturing equipment sector has again reached one of its periodic inflection points. Oversupply in the DRAM and NAND flash memory markets has caused dramatic declines in average selling prices, hurting chip makers like Micron Technology. Although they've been selling more units, the lower pricing still damages their results. Analysts aren't feeling all that charitable yet; they predict a lot of softness for the remainder of this year and into the next, when a recovery may take hold.

Investors like CAPS All-Star camistocks find the current morass the opportune time to buy. As would be typical for similarly situated cyclical stocks, buying when things look bleakest often generates the highest returns:

I think we have seen the lows in the current cycle for semiconductors. Buy them now while everything seems gloomy and sell them in 1-2 years when earnings will be just fabulous.

STEC is another flash memory maker waiting for the tide to turn. Rather than simply cooling its heels, however, it's using its technology to replace hard disks with solid-state drives. Analysts expect a huge market for these SSDs; without any moving parts, they offer faster data access, greater reliability, and less power consumption. STEC made news a few months back when it was awarded the contract to supply the MacBook Air with solid-state drives. Continued advances have investors like mattro88 predicting further gains for STEC, even if it ultimately becomes a takeover target:

Solid state disks are the way of the future - they are faster, smaller, and more reliable than spinning disks. Right now investors are concerned about weakness in consumer electronics sales, which has hurt both STEC and [SanDisk]. What these shorts fail to recognize is that SSDs are beginning to take share from spinning disks in larger applications, from laptop computers to enterprise storage.... I don't buy the argument that disk giants like Western Digital could simply flick a switch and start making SSDs which would wipe out smaller players like STEC. More likely, they would buy out an SSD expert like STEC or SNDK at a nice premium.

Shine your starlight
So are these stocks threadbare or fashion forward? 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?

Suntech Power is a Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 17, 2008, at 11:35 PM, 10qdetective wrote:

    Rich:

    Not as bullish as most on CSIQ's prospects.

    #1. Constant need to finance expansion from in excess of own cash flow. In my opinion, when rising capital costs begin to exceed expected IRR, the bullish game is up.

    #2. How long before CSIQ's 'standard' module design goes the way of the memory chip and becomes a commodity product?

    My Best,

    David J Phillips - Editor, www.10qdetective.blogspot.com

    Contributing Energy Analyst

    CNET/BNET

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