5 All-Star Stocks

Win or lose, we've all got an opinion about which stocks are rockets and which are dogs. If we could invest like Peter Lynch or Mohnish Pabrai, we'd probably have a lot more companies in our win column than on the loss side of the ledger. Warren Buffett began buying railroads last year, and just about any company that ran on tracks came into play.

So when top-notch investors back a stock, you might want to give it more consideration. Over on our community investing site, Motley Fool CAPS, we can do just that. CAPS players who've earned a rating of 80 or better by consistently outperforming their peers are dubbed All-Stars. Sometimes, these ace investors will back a stock that others consider a stinker. Considering the All-Stars' track records, we might want to look a little more closely at their selections.

Here are five companies that have been marked down by some investors, but enjoy unanimous All-Star backing:

Source: Motley Fool CAPS, as of 3/10/07.

Of course, this isn't a list of stocks to buy and sell; instead, it should serve as a starting point for your own research and analysis.

Getting sassy
The alchemists of old sought to turn base metals into gold. Today, South African alternative-fuel company Sasol is busy turning coal and natural gas into liquid gold -- or rather, liquid fuels. The process has been around since the 1920's, and the company's been converting coal to liquid fuel for 50 years. Sasol's Fischer-Tropsch coal-to-liquid (CTL) technology gives it a broad competitive advantage; no one competes significantly with Sasol in its CTL niche, though companies like Headwaters (NYSE:HW) and Peabody Energy (NYSE:BTU) are pursuing feasibility studies.

However, a number of companies are studying the process, including some major oil companies -- another risk associated with an investment in Sasol. There's greater interest in the technology now because rising oil prices make the conversion technology far more feasible. Since CTL and gas-to-liquid (GTL) processes are expensive, cheap oil made it unnecessary to pursue the process seriously. Now that we seem to face a protracted period of elevated energy costs, CTL/GTL, solar, wind, ethanol, and a host of other alternative energy sources are becoming more economically viable.

Top-rated CAPS All-Star ww2004 looked at the energy problems facing South Africa a couple of weeks ago, and saw what the world may be facing in the near future. That can only mean a brighter period of growth for Sasol:

You have to wonder how South Africa could have such bad energy problems as they have had for the past couple months. Could be an early indicator of what the world will be seeing more and more of. An integrated oil and gas company that also makes lots of different chemicals, located in S. Africa, should be able to take advantage of that situation. The ever growing world demand for coal and coal products will be good for [Sasol] as well... King coal has returned.

While critics contend that CTL technology is still a greenhouse-gas producer, CAPS investor jerkimo noted at the end of last year that Sasol's technology tends to be cleaner, and that CO2 emissions are lower:

Looking at Sasol's business .. [it] looks like it will continue to benefit from rising oil prices while it maintains its worldwide dominance in the chemical arena. By the way, they can also convert coal much more cleanly today into fossil fuels (limiting CO2 emissions greatly). I would continue to buy SSL as I can see a double in the next few years.

Other techniques for sequestering CO2 emissions from conversion, such as storing the carbon dioxide emissions underground, are controversial, but they promise to make CTL a better bet.

An all-star act
Although a few CAPS investors have bet against the house here, we haven't yet heard from you. Why not head over to Motley Fool CAPS now, and let us know what you think about these and your other favorite investments? It's completely free. Along with the other 86,000 investors in the CAPS community, you might help uncover the next All-Star Stock.