Top-Rated Stocks Leaders Loathe

Momentum investors love to back companies with the wind in their sails. Contrarian investors typically pick up the cigar butts the market has tossed aside. So what do you call investors who turn against winners? Sourpusses? Shorts?

Over on Motley Fool CAPS, we sometimes call them the savviest investors around. When one of our All-Star players -- those whose stock-picking prowess places them in at least the 80th percentile of our community -- sours on a top-rated stock, perhaps we should take notice. Perhaps the player's found a chink in that highflier's armor, or a question mark in its financial footnotes. Or maybe it's just a hunch. That's why these tables aren't lists of stocks to buy or sell -- just starting points for further research.

Here's a list of stocks that some All-Stars have recently spurned:

Company

CAPS Rating (out of 5)

1-Year Return

CAPS All-Star

Player Rating

Intuitive Surgical (Nasdaq: ISRG  )

****

169.0%

BeautifulPlumage

99.75

Genesee & Wyoming Railroad (NYSE: GWR  )

*****

34.1%

pnouri

96.19

Visa (NYSE: V  )

****

NA

abitarecatania

97.27

Verizon (NYSE: VZ  )

****

0.9%

babuthomas

97.10

First Marblehead (NYSE: FMD  )

****

(80.4%)

goldminingXpert

99.14

NA = not applicable.

Considering that an average of 95% of all CAPS investors think these companies will outperform the market, what might have turned some of CAPS’ top players against these otherwise widely admired companies?

A logical conclusion
Maybe it would have taken a woman's intuition to predict the meteoric rise in the value of Intuitive Surgical's stock, but the medical device manufacturer is now trading at 59 times next year's earnings, and some may think it's due for a surgical strike. CAPS investor KevinKPU recently found himself in the difficult position of being a long-term bull but a short-term bear as a result of its valuation:

Short term bear. The reality of the US recession will take this down a few notches despite its greatness. I am a long term investor in ISRG, but at current P/E, this will get knocked around each time the market turns south.

Yet it's tough to put a price on a company that has a virtual monopoly on surgical robotics. Revenue grew more than 60% over the past year and has been rising at a compounded rate of more than 50% for the past five years. Earnings have long-term growth expectations of 39%, and the Motley Fool Rule Breakers recommendation has managed to beat earnings expectations by about 20% for each of the last five quarters. Is it so far beyond the pale to consider the stock as perhaps being undervalued?

That's what CAPS player Porter77s seemed to think at the end of last month. As more doctors will begin to use Intuitive Surgical's devices, Porter77s asserted that beating earnings in today's environment is something investors need to take note of:

This stock has been a stud. But when the company keeps beating estimates, even in this market, you must take notice. With more surgeries falling under the ISRG knife, the sky is the limit. This is the only healthcare play you need.

Another CAPS investor, aitraders, didn't see any company with a bigger competitive moat than Intuitive Surgical’s in a pitch last month:

I cant imagine a bigger moat. A growth company, with no debt, positve cash flows, 100% Q yoy earnings, inside management, and excellent add-on growth in their accessories for continued growth sustainabiity.

Make lemonade from lemons
We've seen the direction some investors believe these companies are heading, but Motley Fool CAPS is more than what the pros or amateurs think -- even if they're All-Stars. It's where we invite you to share your thoughts and insights and add your voice to the debate. Go ahead, have your say. We're eagerly waiting!

 


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