"If I have seen further than others, it is by standing on the shoulders of giants."
-- Sir Isaac Newton
There's a reason that more than 30,000 investors flock to Omaha, Neb., every May, and why millions more rummage through the Berkshire Hathaway annual reports: Gleaning knowledge from proven investors is one way to find the stocks that will make you rich.
Using Motley Fool CAPS, the Fool's 125,000-plus-member investing community, we can see which stocks got a boost in attention from proven investors in the past month.
In addition to a stock's CAPS star rating, a sudden increase in bullish interest from CAPS members ranked in the top 20% of the community -- we call them CAPS All-Stars -- is a very good sign, one you should take note of. One striking example is genetic-research equipment maker Sequenom, which is up some 70% since its bullish interest doubled the first week of June, while the S&P 500 is down 34% over the same period.
Conversely, a sudden increase in bearish interest from CAPS All-Stars might be an early signal that the stock's one to avoid.
A bullish stampede
To illustrate, here are five stocks receiving more support from CAPS All-Stars over the past four weeks:
|
Company
|
Industry
|
% Change in All-Star Bulls From 11/24 to 12/22
|
CAPS Rating (Out of 5)
|
|
Seagate Technology (NYSE: STX )
|
Technology
|
29%
|
****
|
|
Yingli Green Energy (NYSE: YGE )
|
Technology
|
39%
|
*****
|
|
Leucadia National (NYSE: LUK )
|
Industrial Goods
|
51%
|
*****
|
|
Teck Cominco (NYSE: TCK )
|
Basic Materials
|
37%
|
*****
|
|
ProShares UltraShort Lehman 20+ Treasury ETF (NYSE: TBT )
|
ETF
|
149%
|
*****
|
Data from Motley Fool CAPS as of Dec. 22, 2008.
What I take from this data is that following the broad market sell-off from September through November, CAPS All-Star members began looking for deep value opportunities. In fact, three of these stocks -- Seagate, Leucadia, and Teck Cominco -- trade with single-digit price-to-earnings ratios. Beaten-down high growth opportunities are also getting noticed -- analysts expect Yingli Green Energy to grow anywhere from 30% to 50% over the next five years, but shares remain some 85% off their 52-week highs.
Given that these stocks are all well off their 52-week highs, and given the increase in All-Star approval, these four- and five-star investments present some great opportunities for further research. That matters because our proprietary data has shown that, as a group, four- and five-star CAPS stocks have significantly outperformed the S&P 500.
When bears attack
Now that we've seen which stocks CAPS All-Stars think are poised to rebound, here are five stocks saddled with more "underperform" ratings over the past month:
|
Company
|
Sector
|
Change in All-Star Bears From 11/24 to 12/22
|
CAPS Rating
(Out of 5)
|
|
PacWest Bancorp
|
Financials
|
46%
|
*
|
|
Financial Select Sector SPDR (NYSE: XLF )
|
ETF
|
15%
|
**
|
|
Apartment Investment & Management
|
REIT -- Residential
|
48%
|
*
|
|
General Growth Properties
|
REIT -- Retail
|
88%
|
*
|
|
New York Times (NYSE: NYT )
|
Media
|
11%
|
*
|
Data from Motley Fool CAPS as of Dec. 22, 2008.
CAPS All-Stars remain convinced that financials and real estate are generally not a great place for new money, despite the punishment many have already sustained. Great uncertainty continues to shroud financial-based companies ("Will more banks fail?"), specifically how the actions that the Federal Reserve and Treasury Department take might affect our entire financial system and the companies that rely on it to operate. REITs, particularly office-, retail-, and residential-based ones, are highly dependent on both a strong economy and easy credit to survive and thrive.
One- and two-star investments like these should be researched with skepticism anyway (we've found them to underperform the S&P 500 as a group), but the sudden increase in All-Star scorn should be seen as yet another sign that more danger could lie ahead.
What to do next
Knowing when stocks are poised to change direction takes a keen sense of changing conditions and thorough fundamental analysis. Missing either of these key ingredients could end up being a very bad investment, particularly if you short the stock.
At our new Motley Fool Pro service, which will be reopening for 10 days in January, we'll continue to stand on the shoulders of proven investors by using similar proprietary data points in addition to our own thorough fundamental analysis to identify opportunities to use stocks, ETFs, and options to go both long and short. Our ultimate goal is to help subscribers make money regardless of whether the market is up, down, or flat. If you'd like to learn more about Motley Fool Pro, simply enter your email address in the box below.
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