Top-Rated Stocks the 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:

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

Remember this
No, it's not (slightly modified) shorthand for the lousy day you're having at work. SSD refers instead to "solid state drives," which are hard drives for your computer that are built entirely out of semiconductors instead of magnetic media. You're probably already familiar with such drives in the form of the flash drives you plug into your computer's USB port. STEC, however, is one of a number of flash memory makers building internal SSDs.

The market for SSDs is expected to be large, because without any moving parts, they offer faster data access and greater reliability with less power consumption. Their one drawback has been cost, though that is declining rapidly as well. STEC made news the other day when reports circulated that it was awarded the contract to supply the MacBook Air with solid state drives. Couple this news with a stellar earnings report and upbeat guidance for the future, and it's no wonder that magnetic drive makers, possibly trying to switch over to SSD technology themselves, are feeling threatened. Seagate (NYSE: STX) fired the first salvo by launching a patent infringement lawsuit against STEC a few weeks ago. STEC naturally says it will "vigorously" defend itself.

Investors have been heartened by STEC's recent performance and enjoyed the bounce its stock got after the Apple contract win, lawsuit notwithstanding. Even those CAPS investors who have rated it to underperform the market concede the drive maker's got potential. Yet top-rated CAPS All-Star IBleedConcrete thinks the market overestimates the demand for SSDs right now: "STEC is tough to pick underperform because they seem well run and extremely well capitalized. Despite their recent design wins, I think the market is overestimating consumer demand for expensive solid state drives."

Even tenmiles, who picked STEC this week, has used technical analysis to see the potential for underperformance: "Selling the buzz related to the potential Apple MacBook chip win - appears largely reflected in share price after run-up - still a small player - technicals suggest 10-15% retracement likely within two quarters from $11."

Others, like kuade, think SSDs are the future and we can pretty much forget about debating if or when, particularly when you look at STEC's technology:

Flash is the future, forget the Blue Ray vs HD Dvd wars. Mechanical storage media will go the way of steam engines. STEC development of multi layered NAND memory is a breakthough and the price/Gig will go down.

Make lemonade from lemons
We've seen the direction some investors have indicated they believe these companies are heading, but Motley Fool CAPS is more than what the pros 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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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.