Unloved Stocks Ready to Shine

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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 110,000-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 (5 Max)	Recent Price	Next Year EPS Projected Growth
Advanta (Nasdaq: ADVNB)	***	$8.08	80%
American Apparel (AMEX: APP)	***	$5.53	63%
Resource Capital (NYSE: RSO)	***	$6.90	NA
Royal Bank of Scotland (NYSE: RBS)	***	$4.37	NA
Vical (Nasdaq: VICL)	***	$3.28	3%

Sources: Motley Fool CAPS, Yahoo! Finance.

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 pay attention, too. 

A commercial success
Until the credit crisis hit in earnest at the start of 2007, real estate investment trust Resource Capital was a smartly performing division of its parent, asset-management firm Resource America (Nasdaq: REXI). Since then, however, shares in the REIT, which specializes in commercial financial and real estate-related assets, have been cut by nearly two-thirds.

Many investors assume that such companies involved in the exotica of specialty finance are hard-pressed in these difficult times, but Resource Capital has noted that other than one small mezzanine loan its commercial mortgage portfolio, it hasn't experienced any defaults. That sort of conservative management may help explain why some investors are bidding up its prospects. Says CAPS member sawheele:

This company finances commercial loans. From their conference calls they appear to be very conservative, and therefore have a low default rate. This stock is down because investors have moved away from this sector in general. While I wait for a recovery I also get paid 18-20% dividend. Not bad ...

Try this on for size
It's been a difficult road for American Apparel, which has had to contend with a founder who has at times exhibited questionable judgment. From racy ads at which even Abercrombie & Fitch (NYSE: ANF) would blush, to sexual harassment lawsuits, to the founder's indiscriminate comments about the qualifications of its CFO and accounting irregularities, the company has no shortage of troubles.

Yet its clothes are growing in popularity. Same-store sales were reported to have jumped 16% in June -- a remarkable achievement in this economy -- and it was able to close on an amended credit agreement that will allow it to follow through on a share-repurchase announcement if certain conditions are met. Usually, it takes a strong management team to come through during rough times, but this company appears to be succeeding where others struggle -- even in spite of its head honcho.

CAPS member cnoter thinks the retailer is a hip fashion icon that can still grow beyond the confines of a niche market:

They make nice sweatshirts. And I'm wearing one of their T-shirts right now. They are at this point only in MAJOR cities. That is where the hipsters are for the most part, but as American Apparel fades from hipsterdom, it is bound to find a larger market.

Shine your starlight
So are these stocks driving ahead or ready to crash? It pays to start your research on these stocks at Motley Fool CAPS. Review a company's financial statements, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think are 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?