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 members -- those whose stock-picking prowess places them in at least the 80th percentile of our community -- sours on a top-rated stock, perhaps we should take notice. Perhaps the member's 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's a list of stocks that some All-Stars have spurned recently:
Source: Yahoo! Finance; Motley Fool CAPS. NA = not available.
Considering that on average, 97% of all investors rating these companies think they will outperform the market, what might have turned some of CAPS' top members against these otherwise widely admired companies?
A little tarnished
Investors like All-Star turiddhu say they believe gold and copper miner Northgate Minerals will be able to overcome its current weakness -- shares are off 25% from their 52-week high reached last November -- through a combination of increased production and gold prices. "[T]his company is showing weakness lately because [it's] raising capital to finance operations and takeovers, but with production and metal prices going up the future looks rosy."
Certainly the recent news that Northgate's Young-Davidson mine could be reopened and produce for 12 years would go some ways toward helping achieve new production levels. While possibly having to abandon the Kemess mine expansion could hurt, this could apply a little salve to the wound, and if acquisitions are in the picture, the company might be able to grow its bottom line again.
Mining a natural resource
Cleveland-Cliffs seems to have been hit by the twin bug of the sell-off in coal stocks recently and the news that it would be acquiring Alpha Natural Resources (NYSE: ANR ) for $10 billion. Both concerns seem overblown.
The acquisition would give the renamed Cliffs Natural Resources a combined reserve base of one billion tons of iron ore and one billion tons of metallurgical and steam coal, which would enable the company to continue serving the steel industry with its resources. While a recession here at home may seem problematic, demand continues unabated in the rest of the world, and both coal and steel will be needed by emerging markets. High prices in commodities are also helping drive acquisitions elsewhere. For instance, BHP Billiton (NYSE: BHP ) is chasing after Rio Tinto.
Last month, CAPS All-Star BigDMan64 felt conflicted about Cleveland-Cliffs' prospects, saying that the rise in share price meant its train was "pulling into the depot." Ultimately, he felt it would rise above that because of the demand factors pushing like a tailwind. Here's an excerpt:
I still like the fundamentals of the sector, but this upturn on [Cleveland] has exceeded all of my original expectations and being a value investor, I think the train is pulling into the depot soon. The flip side however is that underlying demand for iron ore pellets continues to not be affected by external forces including a sluggish economy and higher fuel prices.
Make lemonade from lemons
We've seen the direction some investors have indicated they believe these companies are heading, but Motley Fool CAPS is more than what they think, even if they're All-Stars. It's where we invite you to share your thoughts and insights, too. Go ahead, have your say. We're eagerly waiting.
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