Is Wall Street Wrong About These Stocks?

Wall Street hates the companies listed below. So why do our Motley Fool CAPS members disagree? They've bestowed on these companies the highest four- and five-star ratings, signaling their faith that the associated businesses will outperform the market.

So who's got it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?

Stock

CAPS Rating
(out of 5)

Wall Street Bearish Sentiment

Power Integrations (Nasdaq: POWI  )

*****

50%

STMicroelectronics (NYSE: STM  )

****

50%

The Phoenix Companies (NYSE: PNX  )

****

57%

Source: Motley Fool CAPS.

Now as much as we love our CAPS community, don't sell these companies short just because they've garnered the lowest ratings. And don't go long just because Wall Street says to either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.

An integrated opportunity
Whether it's the cell phone in your pocket, the laptop on your desktop, or your flat screen TV mounted on your wall, all of these devices need to take electricity from a high-voltage source such as a wall outlet and convert it to usable power. Typically it means converting alternating current to direct current, reducing the voltage, and regulating the output voltage or current. It's not anything you'd typically think about as a consumer; you just want to buy your device, plug it in, and have it tune in, turn on, or charge up.

But the folks at Power Integrations think about this a lot as they make the integrated circuits and diodes that do just that for all of the electronic devices in our lives. In the latest quarter, it was able to charge up results with 7% growth in revenues, generating profits that beat estimates by a penny. STMicroelectronics, however, has also experienced strong growth. While the segment that includes power-related products is only the company's second largest, it experienced 45% growth last year, outpacing its largest segment, the automotive consumer computer business.

As attractive as the industry is, it's also competitive. But there seems to be enough business to go around as Cirrus Logic (Nasdaq: CRUS  ) , ON Semiconductor (Nasdaq: ONNN  ) , and International Rectifier (NYSE: IRF  ) have all performed well over the past year.

Power Integrations was able to also secure a patent infringement win against Fairchild Semiconductor (NYSE: FCS  ) earlier this year that should help it going forward. Yet even before that, CAPS member dennise saw additional applications that PI ought to snap up.

POWI is a leader in Integrated circuits used in high efficiency ac/dc converters. Called "Ecosmart" technonolgy! Company has over 300 patents (CEO has 120) in this area. Exactly the kind of power that is needed for the coming use in LED lighting applications.

Add the integrated circuit maker to your watchlist, then head over to the Power Integration CAPS page and let us know if you think it's a stock to charge your portfolio.

With a more diversified business, STMicroelectronics has 88% of the CAPS members rating it believing it will outperform the broad market averages compared to 91% for Power Integrations.

Tell us in the comments section below if you agree PI is the better bet, or would both be profitable in your portfolio.

Rising from the ashes
Investing in the aptly named The Phoenix Companies takes a bit of contrarian thinking. Actually, it requires a lot of outside-the-box imaginings. It almost imploded before the financial markets collapsed, and then lost its two biggest distributors, which provided more than 80% of its business. The ratings agencies hated it too, making it impossible to market its life insurance and annuity products to its high net worth target customers. It helps you understand why it wanted the life settlement industry declared illegal so that it could be protected from having to pay out claims. What to do?

There's a saying, "those who can, do; those who can't, teach." Seems Phoenix is doing the latter. While it has a lot of expertise selling the wealthy financial products (though, apparently, not all that successfully), it has taken to consulting with other firms like Edward Jones, teaching them how to reach into the pockets of the rich. It's only a small part of its operations right now, as investment income remains its primary revenue source.

Yet Phoenix commands a lot of support among the CAPS community, where 93% of those rating the life insurer believe it can outperform the broad indexes. I'm not so certain, and I've decided to side with the analysts on this one. I marked it to underperform on CAPS, but you can head to The Phoenix Companies CAPS page and let us know if you think it will experience a rebirth.

What's wrong with that?
It pays to start your own 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.

Sign up today for the completely free service, and tell us which side of the street will be the ultimate winner.

The Motley Fool owns shares of Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 

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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