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 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 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's a list of stocks that some All-Stars have spurned recently:

Company

CAPS Rating
(5 Max)

Est. Long-Term EPS Growth

CAPS All-Star

Member Rating

Freeport-McMoRan Copper & Gold (NYSE: FCX  )

*****

9%

traviskang

95.19

Chesapeake Energy (NYSE: CHK  )

*****

13%

baseballdude

99.50

VAALCO Energy (NYSE: EGY  )

*****

8%

MaskedMan2007

99.59

DuPont (NYSE: DD  )

*****

6%

jwalravens

98.42

Giant Interactive (NYSE: GA  )

*****

23%

mikotian

99.90

Source: Yahoo! Finance; Motley Fool CAPS.

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

What a gas
Because Chesapeake Energy has become a drilling machine lately, the prospect of significantly lower natural gas prices might throw some sand into the gears. Since the beginning of July, when oil, gas, and the prices of other commodities began their retreat, shares of Chesapeake have fallen by 30%. The outlook for the immediate future doesn't seem any brighter. With mild temperatures taking their toll and inventory levels rising, natural gas futures have fallen  to their lowest level since February, while distributor Xcel Energy (NYSE: XEL  ) is expecting prices for September to fall further.

That doesn't deter CAPS member lidanny, who writes that Chesapeake has the ability to profit from demand:

Natural gas has momentum for increased usage due to cost, cleanliness and [increased] emphasis on a self reliant America in terms of energy. This will tie in with the Go Green movement. Chesapeake is investing now in [signing] leases in areas with good prospects for natural gas development. This is not only happening in the south but in Northern New York as well. ... They are locking up these leases at some very attractive prices from their prospective. Many of the royalties are at 12.5% and they are paying as little as 50.00 an acre, much less than they are paying in the southern states. I believe they are well positioned to profit from an increased usage in natural gas.

A strategy to grow with
Diversity is a key investment principle because it protects you when one or more of your investments don't work out. Proof was evident in DuPont's latest quarterly report, where it noted that its participation in three of some of the worst industries these days -- housing, autos, and banking -- still couldn't stop it from growing revenues and profits because of its investments in the hot agricultural segment. Yet it also feels it can easily take advantage of those three dogs when they come back, which it fully expects them to do, while continuing to enjoy the benefits of the pricing power agriculture products will still have.

Dow Chemical (NYSE: DOW  ) has similarly diversified its holdings and has weathered the downturn in the economy better than it otherwise would have, but with energy and raw material costs rising 42% in the latest quarter, it wasn't able to beat analyst expectations.

That multitude of opportunities in DuPont's portfolio means CAPS member RoBoPiCkEr is enjoying the valuation he's seeing:

Attractive valuation. As housing market recovers, people will need more paint to get them ready to sell. Company is well positioned in terms of diversity with regard to its business lines, thus softening the correlation to the housing and making the stock a more conservative bullish strategy on recovery in that market. Revenue increasing nicely again, nice margins and return on capital.

Make lemonade from lemons
It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. We've seen what some investors think about where they believe these companies are heading, but CAPS is more than what they think, even if they're All-Stars. Let's hear what you have to say!

Dow Chemical is an Income Investor pick. Chesapeake Energy is an Inside Value 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. The Motley Fool has a disclosure policy.


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