Although there will always be differences of opinion, these companies are some of the Motley Fool CAPS community's favorites. So why does the professional analyst community look down on them?
Below, we'll look closer at a handful of companies with the highest four- and five-star ratings from CAPS members, meaning you think they have the best chance of outperforming the market. Yet Wall Street still can't muster up enough opinions to agree.
So who's got it right? The professional class of analysts, sitting in their paneled offices, or a motley crew of community investors pooling their best thoughts for others to share? We have an idea about who we think will come out ahead: How about you?
Wall Street Bullish Sentiment
|First Marblehead (NYSE: FMD )||****||40%|
|RADVISION (Nasdaq: RVSN )||*****||44%|
|The Phoenix Companies (NYSE: PNX )||****||43%|
Source: Motley Fool CAPS.
As much as we love our CAPS community, don't invest in these companies just because they've garnered top honors. And don't sell just because Wall Street looks down on them, either. Investing requires closer study on your part, so use these ratings as a launching pad for your own research.
A ray of hope
I have to admit I have a hard time understanding the confidence the CAPS community has placed in private student loan provider First Marblehead. Ever since the financial markets imploded, the lender has been beset with losses, and while they were narrower than in the year-ago period, that didn't change in the latest quarter.
First Marblehead used to securitize private-label student loans for big banks like JPMorgan Chase (NYSE: JPM ) and Bank of America (NYSE: BAC ) , bundling them into trusts that resided off the company's balance sheet. It was a healthy business, representing almost 30% of revenue before the credit crisis hit. Then that all changed and First Marblehead now offers portfolio management and asset servicing. It has started originating private education loans again.
In July, new accounting rules went into effect that required First Marblehead to bring those trusts back onto its financial statements, and with billions of dollars worth of student loans now piled onto its balance sheet, First Marblehead reported a $708 million equity deficit.
The turnaround underway seems like it has a long way to go before gaining traction, yet 94% of the 2,780 CAPS members rating the company believe it will outperform the broad market averages. Add your voice on the First Marblehead CAPS page.
Dusting itself off
Analysts were obviously looking at the declining contribution Cisco (Nasdaq: CSCO ) was going to make to RADVISION's top line and determined the video-conferencing specialist would falter. Cisco had accounted for 42% of RADVISION's revenues in 2009 (up from 39% the year before), but after it acquired rival Tandberg, even RADVISION said revenues would slump.
In the latest quarter they did fall, by 21% year over year, but that was not unexpected. What Wall Street didn't count on was RADVISION's ability to get its video business unit up to a pace that would offset a lot of the lost Cisco revenues. Sales in the VBU segment rose 32%, helping to turn the company into an end-to-end video solutions provider.
There are fewer than 140 CAPS members weighing in on RADVISION, so it's still flying under the radar of much of the investing community. Only you can decide if it's right for your portfolio, so add it to your watchlist and have all the Foolish news and analysis gathered for you in one place.
Construct an argument for growth
There's not much difference between the viatical business Life Partner Holdings (Nasdaq: LPHI ) operates and the life settlement case The Phoenix Companies just lost. Both involve a consumer taking out a life insurance policy and then selling it to a third party for a usually discounted lump sum. The difference between them is how long the insured person has to live. Typically, if it's two years or less, it's considered a viatical; more than that and it's a life settlement.
In a legal case that had three sides, the State of New York recently ruled that life settlement policies are valid. The insured's wife said investors weren't entitled to the proceeds from the policy because they had no "insurable interest" in the insured. The investors said they were entitled to the proceeds they paid for. And The Phoenix Companies and the other insurance companies said they didn't have to pay out at all because the policies were illegal to begin with. The court ruled that an individual can take out a policy for whatever reason and the decision can't be second-guessed, thus validating the life settlement business.
Whatever setback The Phoenix Companies faced from the case, CAPS member WPThatcher still feels the insurer is a bargain.
This company is on the mend, but is still cheap. Selling for a 0.2 [price to book] and 0.13 [price to sales] in what I believe is a pretty undervalued sector. They've been steadily eliminating debt and cutting costs as part of a strategic shift. Third Point LLC reduced their position by 76% back in May, so there had been some pressure on the stock.
What's wrong with that?
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