Unloved Stocks Ready to Shine

Think of investor sentiment as a pendulum that swings in tandem with a company's share price. When investors begin to think highly of your company, its stock might also start heading in the right direction. Alas, you can rarely tell when investors are warming to a stock until after it's made that upward swing.

An astrolabe for investors
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 93,000-plus investors, offer a great way to monitor investor sentiment. Like astronomers scanning the skies, investors can follow a stock's stars through its CAPS rating trend, tracking investor sentiment to help determine the best time to invest. Let's look at one- or two-star-rated companies that have recently enjoyed a bump in investor confidence, and see whether the stars are really aligning in their favor.

Company

CAPS Rating (Out of 5)

Recent Price

1-Year Return

SunPower (Nasdaq: SPWR  )

***

$73.21

62.3%

Echelon (Nasdaq: ELON  )

***

$12.61

26.1%

NorthStar Realty Finance (NYSE: NRF  )

***

$8.77

(33.1%)

Tellabs (Nasdaq: TLAB  )

***

$5.65

(43.6%)

China Techfaith Wireless (Nasdaq: CNTF  )

***

$5.43

(43.7%)

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should too.

A simmering opportunity
It's hard to imagine any alternative-energy source fully supplanting oil as this country's primary fuel. Yet if any of them has a chance to at least dent our dependence on foreign oil, it may be solar energy, the most technologically advanced of the bunch.

This industry holds numerous choices for investors: Suntech Power (NYSE: STP  ) , First Solar (Nasdaq: FSLR  ) , SunPower, Evergreen Solar, and more! SunPower's vertical integration may lend the company an advantage here. Although it doesn't produce the polysilicon necessary to manufacture its solar products, it engages in long-term contracts, even though some are non-binding -- an important distinction that has helped avert some of the increases other manufacturers have experienced from the widening shortage of polysilicon. SunPower believes it has sufficient supplies on hand to meet its customers' demand throughout the rest of the year.

Last quarter's earnings miss last quarter cast dark clouds over the bright future SunPower had been exhibiting. Yet that slump also created an opportunity for some investors, including CAPS All-Star tuffsledding, who found the more "earthly" level of SunPower's share price last month a good entry point for future gains:

This is one of the top players in Solar. Not all solar plays are humbug. Now that it is back down to earth, this seems to be a good entry point. I wish I could nibble in [thirds] like in real life -- this may well go down some more, but eventually I expect to have some nice gains here.

Others find SunPower's financials solid; holding a position now has them geared up for an increase down the road. Says broy76:

Sunpower was unfairly beat down over the past few months. It is now time for it to surge. Solid financials and a great balance sheet. I see another 20% upside to this stock within the next couple months.

Yet some All-Stars remain unconvinced. Despite the apparent maturity of the industry this time around, dwot finds that it is still too new and untested to for him to go all in. As he noted last November, the company was "priced for perfection" -- a tough standard to meet:

There is no question that this looks like an amazing product to me, but it hasn't been proven for any length of time on the market and it needs to get earning up about 25 fold to justify the current share price. ... [From] the last quarterly report[:] "In addition, another major supplier of solar panels notified us of a product defect that may affect a substantial number of panels installed by SP Systems between 2002 and September 2006." ... This one is priced for perfect execution of plan and enormous sales growth.

Shine your starlight
Does SunPower have the sunny future that CAPS investors suspect? Well, we haven't yet heard from you, and at Motley Fool CAPS, every investor's opinion counts. Your voice could determine whether these stocks become shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?

Suntech Power is a Motley Fool Rule Breakers selection. Thirty days of free stock picks can be yours!

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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