Dream Stocks for Contrarian Investors

Investors are always hunting for the next big stock -- the dream stock whose price increases several times over when the market finally discovers it. It's easy to look back and discover the 10 best stocks of the past decade. But I'm more interested in the tools that can help me evaluate tomorrow's greatest companies.

Motley Fool CAPS offers a variety of resources to aid Fools in finding tomorrow's leaders. Our 165,000-member community is full of investors helping each other beat the market.

We'll enlist CAPS to screen for solid yet beaten-down companies, then get the story behind some of its more highly rated stocks. CAPS' nifty screener will help us find stocks with:

  • A market cap of at least $500 million.
  • A long term debt-to-equity ratio of less than 0.5.
  • A share price at least 30% below its 12-month high.
  • A three year revenue growth rate of at least 15%.
  • A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our CAPS members to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Below is a sample of stocks our screen returned.

Company

Revenue Growth Rate,
Past 3 Years

% Below 12-Month High

CAPS Rating
(out of 5)

Brocade Communications Systems (Nasdaq: BRCD  )

19.8%

51.8%

****

Western Digital (NYSE: WDC  )

18.4%

48.8%

****

IMAX (Nasdaq: IMAX  )

18.2%

35%

***

Data and star rankings from CAPS.

Brocade
Brocade has been posting weak sales numbers in recent quarters, with a slight year-over-year drop in its fiscal second quarter and a small 2% uptick in its third. The lowering of its full-year revenue guidance has further stoked concerns among investors of weaker IT spending, especially considering that many investors are already on edge after competitor Cisco (Nasdaq: CSCO  ) said it's seeing uncertainty among its customers. Brocade carries a solid four-star rating in CAPS as some members look for improvement in its business in the long-term, but some are holding on to their bullish outlooks based on buyout speculation. Overall, 94% of the 730 CAPS members rating Brocade expect it to outperform the broader market.

Western Digital
Western Digital and rival Seagate Technology (Nasdaq: STX  ) aren't feeling much love from Mr. Market lately as fears of slowing PC sales and competition for hard drives have investors worried about the companies' margin strength. Western Digital's supplier Marvell Technology (Nasdaq: MRVL  ) echoed the concern by noting excess inventory in the PC supply chain in the second quarter. But there are a few CAPS members calling the concerns overblown. With Western digital's solid balance sheet, shares that are dragging near 52-week lows and a single-digit earnings multiple, it's not a stretch to see the stock as a big bargain opportunity. Comparing bulls to bears, about 95% of the 1,303 members rating Western Digital are still bullish on the stock.

IMAX
Some CAPS members see a big future for IMAX as the company builds on its recent momentum at the box office. The success of blockbuster hit Avatar not only helped it financially, but also provided a catalyst for more deals, and the strength of recent contract signings has prompted the company to raise its outlook for theater system installations by 25% this year. After posting a 38% increase in second-quarter revenue, strong releases of films like Disney Pixar's Toy Story 3 have things looking good for the third quarter, and the company sees a much stronger growth opportunity in China than originally envisioned. Overall, 92% of the 1,384 CAPS members rating IMAX believe it is a market-beating investment.  

Let 165,000 members be the jury
The collective wisdom of a huge pool of investors can help give context to a page of numbers from a stock screen. But individual investors are still the best judges of what to do with their own money. Fools should always perform their own due diligence.

Happily, it's easy to chime in with your own opinion. If you agree that these companies present dream opportunities -- or see more of a nightmare instead -- simply scroll down and add your thoughts in the comments box.

Motley Fool Global Gains is yet another Foolish resource to help you find promising investment opportunities beyond our borders. Check out all the latest recommendations from the teams' on-the-ground research, free for 30 days.

Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns no shares of companies mentioned here. Walt Disney is an Inside Value pick. IMAX is a Rule Breakers choice. Walt Disney is also a Stock Advisor selection. The Fool's disclosure policy screens the good, the bad and the ugly.


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