6 Stocks Defying the Doubters

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

Monthly Return

One-Year return

Current CAPS Rating (out of 5)

Hydrogenics (Nasdaq: HYGS  )

68.7%

2.9%

**

Halozyme Therapeutics (Nasdaq: HALO  )

30.5%

(31.2%)

**

EnerNOC (Nasdaq: ENOC  )

27.6%

(53.8%)

**

Goodrich Petroleum (NYSE: GDP  )

27.2%

94.9%

**

Sealy (NYSE: ZZ  )

12.4%

(60%)

*

Cott

10.9%

(79.9%)

*

Data from Motley Fool CAPS as of July 8. Monthly returns calculated from June 6 to July 8.

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 some high-performing stocks. Are any of the stocks in the table above the same sort of unloved winners?

Speculating on fuel cells
Late last month, CAPS All-Star garyb52 went out on a limb and gave two-star Hydrogenics a thumbs-up, saying:

This company is uniquely positioned to lead the way in clean, renewable energy. Hydrogenics could be a once-in-a-lifetime stock! Enormous potential here, to be sure. There's also a ton of risk here, so I would take profits on any jump, and buy additional shares on any pullback. There could be some dramatic sell-offs as this company gathers momentum and the earnings fall into place, so tread carefully and be patient. A five-to-ten year horizon is best with this kind of stock, you won't be disappointed!

So is there enormous potential? Could this be a "once-in-a-lifetime stock?" Well, sure, but Hydrogenics could be a lot of things -- including a big flop.

The company specializes in hydrogen-based energy. It sells hydrogen for power generation and develops fuel cells that -- among other things -- are used by General Motors (NYSE: GM  ) and Toyota (NYSE: TM  ) in developing fuel-cell-based cars. And while there's a lot we can say about the concept and the potential for the company's products, one thing we can't point to is any sort of profit on the horizon. Hydrogenics has amassed a shareholders’ deficit of around $282 million and has had a steady appetite for investor cash.

Keeping in mind Warren Buffett’s No. 1 rule of investing, “Don’t lose money,” I think Hydrogenics is one that we can safely skip.

Is debt Sealy-ing a bed maker's fate?
I'd love to say that I have a better outlook on Sealy, since its business -- selling beds under some great bedding brand names -- should perform well over the long term. Unfortunately, the company loaded itself up with a massive amount of debt that is beginning to look ominous as the slow economy weighs on its sales and profits.

CAPS All-Star TheGarcipian is very pessimistic on Sealy and re-recommended it as a short in early June:

The current wave in the financial meltdown that started with the mortgage-backed securities and CDOs that were unsustainable is the furniture makers and resellers. If people are not buying houses, there will be less demand for filling those houses. We've already seen Levitz and now Wickes Furniture closed their doors. I'm thinking the bed makers, particularly Sealy, will be the next casualties. Its financials are not all that good currently, and the tough times ahead are going to stress them even more. The stock has fallen quite a bit already, but I think it might have farther to go.

Make your call
So what's your take? Is there good reason to get more bullish on these stocks right now, or are their outperforming days numbered? Head over to CAPS and let the community of more than 110,000 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 5,500-plus stocks on CAPS.

More CAPS Foolishness:

Fool contributor Matt Koppenheffer didn't see these particular moves coming, but he's rarely surprised at Mr. Market's general tomfoolery. He does not own shares of any of the companies mentioned. The Fool’s disclosure policy would like to remind readers that Arnold "The Governator" Schwarzenegger drives a hydrogen-powered Hummer.


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  • Report this Comment On July 10, 2008, at 8:07 PM, CBombay wrote:

    Regarding Sealy. I totally agree. I listened in on the earnings call. The industry just continues and will continue its downward spiral. Management doesn't have many options now since their debt (about $1.1 billion) is just weighing them down. (If I remember, Tangible Assets are around $600M, and quarterly sales are only $375M.)

    Margins are down from around 42% to 39%. But if you adjust for their one-time accounting change, gross margins are only 37%.

    Costs are going up. Unit sales are dropping. Average price is dropping. Now international is tanking. Their distributors are going out of business. Their a/p are going up. They've already reduced a/r as much as possible.

    Bondholders will be in charge very soon. The next two quarters are going to be significantly worse.

    Want more understanding. Read the transcript from the earnings call along with the analysts questions. You will sell.

    I bought puts.

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