3 1-Star Stocks Worth Buying

Without question, the CAPS stock rating system is unparalleled in terms of collecting opinions from investors and utilizing that data to formulate an easy to understand figure that represents the consensus opinion. With more than 5,000 stocks to choose from, rated from one star at the low end to five stars as the most optimistic, the sheer data that's compiled can be almost overwhelming.

But what happens when you don't agree with the community consensus on a stock?

Well, that's precisely when CAPS comes in handy. It allows your voice to be heard and your opinion to be incorporated into the overall consensus on that stock.

Scouring last night through the more than 900 one-star rated stocks (the lowest rating), I came up with three that I feel are undeserving of their low rating. Here they are, in no particular order, along with a brief description of why I feel investors may want to give the companies a second look.

Astoria Financial (NYSE: AF  )
Astoria reminds me a lot of Hudson City Bancorp (Nasdaq: HCBK  ) , a favorite of income-seeking investors prior to, and immediately after, the credit crisis. Astoria and Hudson City both survived the credit crisis and housing bubble relatively intact, only to see loan loss provisions rise a full two years after the bubble burst. Both companies have been dealing with higher costs and loan loss provisions since then.

I feel Astoria makes a particularly attractive buy candidate because of its long history of profitability and proactive approach to running its business. Recently, the company froze executives' wages to rein in expenses -- something rarely seen in the banking sector. In its most recent quarter, loan loss provisions fell 33%, possibly signaling that the bottom could be in for Astoria. At just 68% of book value and yielding 5.7%, Astoria looks like a rebound candidate if I've ever seen one.

magicJack VocalTec (Nasdaq: CALL  )
I freely admit that I hate these commercials when they come on TV late at night, but they have been incredibly effective at garnering customers. The company, which provides VoIP services on various platforms, is going toe-to-toe with landline dinosaurs AT&T and Verizon and winning Charlie Sheen style. In other words, magicJack is doing to the phone companies what Vonage (NYSE: VG  ) could never successfully do -- gain market share and turn a profit almost immediately after launching its product, even with an aggressive marketing budget.

Just two weeks ago, after reviewing its January sales figures, magicJack predicted its first-quarter EPS would surpass analysts' expectations by 20%. In January, the company also announced an increase in its share repurchase program, totaling $55 million. Cash flow is obviously very strong at magicJack, and investors ignore this opportunity at their own risk.

Web.com Group (Nasdaq: WWWW  )
Web.com can't seem to get any love after going on a buying spree over the past year. The company, which provides Internet and online marketing services to small businesses, acquired Register.com and Network Solutions all within the last year. Combining these entities all under one business has been challenging, but Web.com seems to be adjusting just fine by the look of its fourth-quarter results.

The key metric in its report was that ARPU, the average revenue per user, rose 4% over the year-ago period. ARPU is extremely important for gross margin expansion. The company also remained solidly profitable. Perhaps the one concern investors have has to do with subscriber losses at Web.com and Register.com. Web.com's hope is that its Network Solutions addition should slow or reverse that trend. Trading at a mere eight times forward earnings, I feel the community may be underestimating this company's potential.

Foolish roundup
There you have it -- three one-star stocks that have been given a bad rap. I plan on adding my opinion to the community collective by making a CAPScall of outperform on all three companies. The question now is: Would you do the same?

Share your thoughts in the comments section below and consider adding these three stocks to your free and personalized watchlist.

Are you curious which four-star stock has captivated the attention of our chief investment officer? Get your copy of "The Motley Fool's Top Stock for 2012" for free and find out which company he dubbed the "Costco of Latin America."

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He loves to play the contrarian. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always rated five-stars.


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