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 120,000-plus members, 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.

Company

CAPS Rating (out of 5 max)

Recent Price

Next Year EPS Growth

Capstone Turbines (Nasdaq: CPST  )

***

$1.17

88%

Alpha Natural Resources (NYSE: ANR  )

***

$29.64

292%

Time Warner Cable (NYSE: TWC  )

***

$18.30

2%

Robert Half International (NYSE: RHI  )

***

$15.78

(27%)

Hershey (NYSE: HSY  )

***

$33.59

3%

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.

The sun's always shining somewhere
While the merger with Alpha Natural Resources is on track for its November vote, doubts remain that Cleveland Natural Resources (NYSE: CLF  ) shareholders will approve the union. Harbinger Capital lost its bid to double its stake in Cleveland (with an eye on preventing the acquisition), and there may be enough negative sentiment to make the vote very close. So worried is Cleveland's management that it adopted a "poison pill" measure to prevent anyone from acquiring the company. CAPS member babypoop thinks it might be worth keeping an eye on Alpha before making any move: "Let's watch this one a little longer. I think it can get back to its 52 week low."

Melt-in-your mouth value
Selling $1.5 billion worth of chocolate is no small feat. Hershey -- amid a yearlong turnaround plan -- managed to meet analyst expectations for profits despite higher costs for ingredients. Those input costs have CAPS member SwordAgain agreeing with Goldman Sachs that the candy maker is a "conviction sell":

Significant rise in processing costs and material costs. Company plans to offset with price increases. This is not a certain success. Retail sale to suffer across the board. Will affect bottom line. Goldman Sachs recently put on conviction sell list.

Hershey may be turning around, but the economy at large doesn't seem so lucky. In fact, many economists expect things to get worse long before they get better. Unemployment figures are fast approaching the levels reached in 2001 and 1992, but in those years, that was the bottom. Now, economists are saying we're still in full-bore decline. That obviously spells trouble for employment agencies like Robert Half and Manpower (NYSE: MAN  ) , which help match up workers and employers.

Top-rated CAPS All-Star member billsback32 still thinks Robert Half will succeed by more than half, though third-quarter results make that goal seem difficult in restrospect:

Very high return on equity (roe) and operating margins relative to competitors. Solid past and projected future growth relative to P/E ratio. The CEO has phenomenal tenure with 21 years of experience as RHI's CEO.

Shine your starlight
Are these stocks starstruck or star-crossed? 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?

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.


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