Expectations are everything in investing. If figuring out for sure what a company is going to do in the future were as simple as looking at historical performance, we'd all be experts at equity analysis. We'd know exactly what every company is going to do in the future, and we'd calculate the exact returns we could expect. In that scenario, we'd also lose all excess returns. Without the risk of the unknown, stocks would look a whole heck of a lot like another basically riskless investment vehicle -- U.S. treasuries. How much fun would that be?
But we don't even have perfect information about the past, let alone any guarantee that we could use that information to predict stocks' future. As we all know, "historical results may not be indicative of future performance." So we look at those past results, along with a host of other things, and make estimates for what we think might happen to the economy, the company's industry, and the company itself in the future. And sometimes we're oh-so-wrong.
So I've turned to The Motley Fool's CAPS community, where investors of all walks of life can weigh in with their thoughts on more than 3,000 stocks. From CAPS, I've come up with a handful of unloved stocks that have defied everyone's expectations. Are these stocks better than anybody thought, or are they just getting their brief day in the sun?
Here are this week's scorching seven, as identified by your fellow Fools on CAPS. Each of the companies below had been given a one-star rating (the lowest) by our community of investors just 30 days ago:
|
Stock |
30-day return |
One-year return |
|---|---|---|
|
Marshall Edwards (NASDAQ:MSHL) |
43.4% |
(29.7%) |
|
Applica (NYSE:APN) |
40.5% |
349.7% |
|
Oncolytics Biotech (NASDAQ:ONCY) |
34.7% |
(38.2%) |
|
American Real Estate Partners (NYSE:ACP) |
32.8% |
172.0% |
|
Cogent Communications (NASDAQ:CCOI) |
30.0% |
243.8% |
|
Cray (NASDAQ:CRAY) |
24.2% |
41.7% |
|
Seattle Genetics (NASDAQ:SGEN) |
23.9% |
34.5% |
Despite their gains, three of these stocks -- Marshall Edwards, Oncolytics Biotech, and Seattle Genetics -- are still stuck at one star. Cray and Cogent Communications now have two stars, while Applica and American Real Estate Partners have been bumped up to three-star status.
Trying to bring back super times of old
There was once a time in the past when "Cray" was the widely known and well-respected byword for supercomputing. That was when supercomputers were still large, monolithic machines using proprietary guts, and Cray competed primarily with companies such as IBM and Silicon Graphics (NASDAQ:SGIC).
But changes in computing, including high-speed interconnects and clustering technology, have allowed systems like Sandia Labs' Thunderbird to be built. The Thunderbird system comprises 4,096 Dell PowerEdge servers, each with dual Intel Xeon 3.6Ghz processors and 6GB of RAM. By banding together clusters of relatively simple servers, systems like Thunderbird can outperform monolithic units like Cray's -- with a lower price tag. This has been bad news for Cray and SGI, which only recently emerged from bankruptcy, because it opened the supercomputing market's door to competitors such as Dell, Sun, Hewlett-Packard, and privately held companies like Appro International and Linux Networks.
After posting $237 million in revenue and a modest profit in 2003, Cray's revenue dropped almost 40% in 2004, and operating profit plunged into the red. While 2005 saw some recovery, revenue was lower than 2003, and the bottom line was remained underwater. Even worse, the company was burning through hefty amounts of cash, requiring a significant stock offering in 2003 and an $80 million convertible debt issuance in 2004, which represented roughly 65% of shareholders' equity at the time.
So what's making CAPS players reconsider Cray's former one-star rating? A big reason for the shift is the $250 million DARPA contract that Cray announced it had won back in November. The contract was a huge success for the company, and it should mean a big gold star for CEO Peter Ungaro, who took over the top spot in August 2005. Using cheaper off-the-shelf components such as AMD Opteron processors, which are featured in Cray's Red Storm system at Sandia Labs, may help the company get back into the fray. Though operations haven't shown a profit yet, and the company issued $80 million in stock back in December to help keep the lights on, the DARPA contract could help bring attention back to the former supercomputer king.
CAPS All-Star StoneCanyonMom says: "this computer was ahead of its time in the early 80's when I first saw it. Guess I'm betting on this one as it brings back some good past memories." For its shareholders' sake, perhaps Cray can use the DARPA contract to rebuild its once-great name and ensure its future.
Is it high time to add some of these unloved stocks to your portfolio? Maybe not, but at the very least, a few of these selections could be excellent candidates for further due diligence. In the meantime, get in the game and get yourself heard in the CAPS community. You'll also be able to read timely analysis from fellow CAPS players, and perhaps offer your own pitch for one of these stocks. CAPS is entirely free, and unlike my Honda Civic, it's definitely a place where "the more the merrier" is actually true.
More related Foolishness:
Dell and Intel are both Motley Fool Inside Value picks, while Dell does double duty as a Stock Advisor selection. Whatever your investing style, the Fool has a newsletter for you.
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 is always expected.
