7 Low-Rated Stocks That Soared

Successful investing requires you to think independently and stick to your convictions. That's hard enough with stocks that are generally popular -- after all, in the stock market, there's a seller for every buyer. But it gets even tougher with stocks that can't seem to find good press or bullish investors anywhere. Of course, defying popular opinion has led many contrarian investors to great returns.

In that spirit, I've headed to Motley Fool CAPS to dig up some unloved stocks that have delivered big gains to shareholders over the past month. Our community of investors has put each of these companies on the bottom two rungs of the CAPS rating scale:

Stock

30-Day Return

One-Year Return

Current CAPS Rating (out of 5)

Meritage Homes (NYSE:MTH)

64.7%

(66.2%)

**

Irwin Financial (NYSE:IFC)

45.4%

(55.6%)

**

XM Satellite Radio (NASDAQ:XMSR)

24.2%

1.5%

*

Countrywide Financial (NYSE:CFC)

18.8%

(82.2%)

**

Capital One Financial (NYSE:COF)

14.8%

(39.5%)

*

General Motors (NYSE:GM)

11.7%

(24.7%)

*

Abercrombie & Fitch (NYSE:ANF)

10.5%

(2.4%)

**

Data from Motley Fool CAPS as of Feb. 13.

Now, given CAPS' knack for accurately gauging winners and losers, I'm not recommending that you run out and buy these stocks! An index set up to short CAPS' least-liked stocks has outperformed nearly 99% of all other CAPS players. That said, CAPS players have proved overly negative on high-performing stocks such as Crocs and DryShips. Are any of the stocks in the table above the same sort of undercover rockets?

Do research? You're kidding!
That's right, the best way to figure out whether any of these stocks is worth considering for your portfolio (real or CAPS) is to roll up those sleeves and dig in a bit. What we're looking for here are stocks that have good fundamentals despite the lack of popularity -- a profitable business, good management, and some decent growth prospects.

Not surprisingly, four of the seven above are in the housing and finance industries. Many, if not most, of the companies in these industries have found themselves with a low rating on CAPS as players continue to bet on more unraveling in the housing and credit markets. The company that looks most interesting to me, though, is retailer Abercrombie & Fitch.

CAPS players are understandably skittish about retailers right now. The economic troubles being handed down from the aforementioned housing-market crisis are making shoppers think twice about plunking down their hard-earned money for new duds that they don't necessarily need. This is certainly not good news for Abercrombie.

However, the Foolish way is to take a longer-term view on investments, and here we have the potential to pick up one of the premier names in retail while other investors are looking the other way. The company has a handful of successful concepts, including its namesake, abercrombie for kids, Hollister, and Ruehl. More recently, it launched a line of lingerie stores under the Gilly Hicks name. And thanks to its strong following, the company has historically sported some of the best metrics among fashion retailers.

Despite the lousy two-star rating on CAPS, the stock does have more than 600 players who think it will outperform the broader market, including nine out of nine Wall Street players that have rated it. CAPS All-Star JDSancho is one of the Abercrombie bulls who recently tagged the stock as an outperformer, noting late last month:

Even though the malls were pretty much empty, [Abercrombie] was seeing moderate traffic with most individuals actually purchasing! ... Retail may or may not have a tough 2008 (I'm no economist), but I know [Abercrombie] is "best of breed" so I'm not worried about the short term.

So what's your take? Is there good reason to be bullish on Abercrombie right now? Head over to CAPS and let the community of more than 83,000 Fools know what you think. While you're there, you can start your research on any of the other stocks listed above -- or any of the 5,000-plus stocks on CAPS.

More CAPS Foolishness:


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 578256, ~/Articles/ArticleHandler.aspx, 9/16/2014 9:46:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement