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 115,000-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. Data suggests that CAPS' highest-rated stocks performed best, while the lowest-rated did worst. Let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence, and see whether the stars are really aligning in their favor.

Sources: Motley Fool CAPS; Yahoo! Finance, as of Aug. 22, 2008.

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.

This roller coaster's on an upswing
Theme park operator Six Flags has been providing investors with more jaw-dropping chills than its Atlanta-based roller coaster Goliath. While the ride is fun, seeing nearly three-quarters of your shares' value evaporate over the past year produces all of the nausea and none of the delight. However, Six Flags' latest earnings report earned more flags for fun, and a slight profit for investors, much as Disney (NYSE:DIS) was able to profit from its theme parks.

Back in May, CAPS member pigactor predicted that Six Flags would surprise investors as it improved its operations this year:

2008 is the year we will see results from the turnaround. Management knows what it's doing. They're improving the parks, customer satisfaction is up, they're addressing debt, forming strategic alliances with other companies.

I can see clearly now
Optics equipment maker JDS Uniphase often falls victim to analyst exuberance. For instance, its recent revenue guidance of $378 million to $394 million fell below the Street's expectations of $399 million. Coupled with lower-than-expected performance in the company's latest quarter, this disappointment caused the market to chase shares over a cliff.

CAPS member CevicheMan wrote last March that management needed to shoulder a lot of blame for the company's lack of performance; he doesn't foresee a U-turn until there is a change at the top:

I have watched (owned) this stock since the bubble burst. It, nearly alone among tech companies has failed to recover. Rather, today it is worth less than at any time since the bubble burst due to the failure of management to take sufficiently bold steps to recover. Until top management is changed it will continue to flounder. Management has demonstrated a lack of concern for small stock holders and continues to issue millions of shares in take overs (dilution) but continues to pay itself extremely well.

A heartening stock story
Like Intuitive Surgical (NASDAQ:ISRG), with its unique da Vinci system, Thoratec's device to provide cardiac support in the event of heart failure is winning over adherents. CAPS member Doughboy33 felt as far back as February that its innovative designs made it a buy-and-hold stock:

True innovation in the medical technology industry is relatively rare. Left ventricular assist devices fit into that category. They provide a therapeutic alternative for patients who otherwise have limited options. Additionally, LVADs are big ticket items, which represent an important new revenue stream for hospital and surgeons, and eventually the diversified med tech companies. [Thoratec] offers a leading position in this emerging industry combined with a sparkling balance sheet.

Shine your starlight
So are these stocks driving ahead, or ready to crash? 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. Then weigh in with your own thoughts on which stocks you think are 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?