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. Maybe 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 recently spurned:
Sources: Yahoo! Finance, Motley Fool CAPS.
Considering that, on average, 95% of all members rating these companies think they will outperform the market, what might have turned some of CAPS' top players against them?
Fear and loathing
In looking at Garmin, CAPS All-Star member bshoemak2 sees a problem of declining profits, rising inventories, and increased competition from the likes of Nokia (NYSE: NOK). This member considers the GPS maker an interesting short sale experiment: "I could be wrong, but [Garmin] is beginning to look like a value trap (cyclic company with low P/E, high but declining margins, highly touted by some analysts but about to roll over). Reminds me of [Seagate Technology] at beginning 2008."
With billionaire T. Boone Pickens picking wind as one of the leading alternative-energy sources for the future, people suspect that America's largest carbon-fiber manufacturer, Hexcel (NYSE: HXL), will be a natural winner. Yet some investors wanting exposure in China might choose A-Power Energy Generation Systems, with its dual focus on wind and power generation in China. Back in July, CAPS member Bobwins07 found that the two make it a combination investment:
[A-Power] is a play on the infrastructure buildout in China that will go on for several decades. [The company] works in the cogeneration and distributed grid workspace. They contract with industrial factories to harvest energy from the waste heat already being generated. The energy is converted to electricity and used for the plant or for nearby worker villages or for sale back to the regional power grid. ... In addition to cogeneration, [A-Power] is a wind energy play.
Meanwhile, even with rising demand for OmniVision Technologies' image-sensing devices, CAPS member SwordAgain finds that the risk-reward ratio in the stock merits an underperform rating:
Terribly tough competitive environment. … Somewhat poor execution. Love the technology. So do a lot of techies. Too much enthusiasm. Might be a takeover play.
And at VSE, the rising number of government contracts has CAPS member DCMonty25 suggesting that this engineering, consulting, and services contractor will indeed outperform the market:
This company contracts with almost every branch of the U.S. Armed Services and has several long-term agreements with the government. She's on her way back up, Cap'n. …
Demand for the company's products remains strong, with sales for the last quarter growing 68 percent, rising to $159.64 million ... strong price momentum, as well ...
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 the direction in which some investors think these companies are heading, but Motley Fool CAPS is more than what the pros think, even if they're All-Stars. Let's hear what you have to say!
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