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 members -- 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 member'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:
Sources: Yahoo! Finance; Motley Fool CAPS.
Considering that on average, 97% of all members rating these companies think they will outperform the market, what might have turned some of CAPS' top players against these otherwise widely admired companies?
Fear and loathing
Analyzing where businesses are going by looking at what they've done allowed analytics provider Actuate to grow revenue at a 11% compounded rate over the past three years, with earnings increasing 73% per year over that same time period. Importantly, analysts are expecting Actuate to experience a more realistic 20% earnings growth rate for the next five years, which, at its current price, might make it an attractive buyout candidate. The sector has experienced some consolidation with both Oracle (Nasdaq: ORCL) and SAP (NYSE: SAP) buying up smaller players in the space, which may make it more difficult for Actuate to go it alone in the future.
As CAPS member Kingballer12 noted in June, the business services firm is in fine financial shape to take on the challenges facing it:
Opensource technology will become higher in demand not only by financial instituitions but by other tech giants such as Microsoft and Apple. As companies want to cut costs and manage products more effectively, actuate product's will be in high demand. Company is in excellent financial shape. Although revenue dropped, international sales went up 20%.... No debt, good inside ownwership, and future acquistion by bigger company definitely possibly. Company only hurt by U.S. economy but I expect even higher revenue from international sales in the future.
Even with the big guns like T. Boone Pickens placing a large wager on the use of natural gas for our future energy needs, CAPS member Lordrobot feels that abundant gas supplies won't allow for sufficient price appreciation, and producers like Devon Energy will underperform as a result:
No matter how much T. Boone Pickens pushes [natural gas (NG)], it will never be big in cars in the U.S. NG requires too much water to push it out of the rock formation. We have no shortages of supply, Oil futures are falling. We can make it from coal. NG is going down in price. There will be a contraction of high risk credit to expore and remove the gas. NG is not a hedge against inflation or the dollar.
It would seem that the same arguments would apply to Gastar Exploration, then. As heavily reported as oil's price decline has been since mid-summer, natural gas prices have declined twice as much, leading to the implosion of at least one hedge fund that bet the wrong way. Still, CAPS member LCBlake believes that Gastar is making smart acquisitions that will position it well:
This company is quietly establishing all the right plays. It has acquired large amounts of acreage in developing plays. It is also managing cash very well and finding ways to cut costs as develops new wells. The downside is being a small company makes it more vulnerable to swings in the market price of gas as well as paying high prices for the money it does acquire.... However, I believe as we move to a greener (environmentally and hopefully through my portfolio as well) that natural gas will increase in demand.
Make lemonade from lemons
It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. 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. Let's hear what you have to say!
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