Surprises are part of the game when it comes to picking stocks. Sometimes this can mean bad news, like one of your top stocks revealing that management has been backdating options.
Other times, though, the market gets caught off guard by positive surprises from stocks that most investors thought were down for the count. In this situation, investors who stood by the stock often break out into a chorus of "I told you so," as short sellers are forced to figure out just how much pain they can take.
To dig up some of these unloved stocks that have been defying naysayers, I'm turning once again to The Motley Fool's CAPS community. 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 |
Current CAPS Rating |
|---|---|---|---|
|
Jones Soda |
68.8% |
185.2% |
|
|
Hayes Lemmerz International |
35.8% |
171.1% |
|
|
ImClone Systems |
30.1% |
16.1% |
|
|
Odyssey Marine Exploration |
29.0% |
3.0% |
|
|
Adolor |
25.1% |
(63.4%) |
|
|
Gaiam |
25.0% |
(6.5%) |
|
|
LivePerson |
24.9% |
13.0% |
It's important to remember that some of these stocks -- particularly the smaller, more volatile ones -- could just as easily reverse these big gains over the next 30 days. In some cases, though, the strength could be a sign that the company's prospects have changed for the better, or that it has been beaten down just a little too far.
So the question with these stocks is: Are they better than CAPS players had thought, or are they just singing that proverbial swan song? The best way to get a feel for where these guys are headed is to dig in and do some research. I thought I'd kick you off with some thoughts on one of these stocks: Jones Soda.
A little sizzle with your fizzle
Now that Jones Soda has shown up twice on the Surprising 1-Star list since the beginning of the year, I figured it was high time for me to give ol' Jonesy some face time.
If you're not familiar with Jones Soda, it's a company that focuses on all-natural soft drinks and energy drinks. Keep an eye out the next time you're picking up a coffee at Starbucks or shopping at Target -- both are notable merchants of Jones' bubbly brews. Jones' brands feature Jones Pure Cane Soda, a soda that uses sugar as a sweetener instead of the ubiquitous high fructose corn syrup, and WhoopAss, Jones' citrus-flavored energy drink.
Jones' stock has been on a meteoric rise since December, but a lot of that has come in just the past month. On March 8, the company announced its fourth-quarter and full-year results. Though the numbers were respectable, the real excitement came outside the hard dollars and cents. In the release, CEO Peter van Stolk reiterated plans to rapidly expand distribution through an agreement with National Beverage Corp. and a new canned soda product. During the conference call that followed, van Stolk revealed that Wal-Mart, Kroger, and Safeway would be among the new retailers offering Jones Soda.
There's no doubt that investors right now are betting on the come for Jones -- the stock is currently trading at just about 100 times analysts' 2007 estimates. Historical financial performance is certainly no indicator of being able to sustain that type of valuation. The bottom line tripled in 2006 versus 2005, but it was slightly down in '05 versus '04, and revenue growth has averaged just less than 20% over the past two years. But Jones has also never had its sodas in Wal-Mart before.
Jones has managed to move on up from the one-star rating it had for awhile; it now sports two stars. The top bull pitch on Jones' CAPS page is from eeprom, who actually saw the potential for Jones to skyrocket even before the big jump this month. Back in January, he wrote:
"In most cases, stock price is a lagging indicator of company performance. In the case of Jones Soda, I think that it is a future indicator. The P/E is a painful 95 right now, but this company might just be worth the money.
"Take a look at their management team before you dismiss them. Something to look for in 2007-2008 is the advent of their new carbonated soft-drink product, Jones Cans. For the first time, Jones will be competing for grocery store shelf space with Coke, Pepsi, and all the other soft-drink behemoths. And they have an edge: they will be promoting their product as using pure cane sugar as opposed to high fructose corn syrup.
"This country is becoming increasingly health conscious -- even KFC is making an effort to reduce trans fats -- and Jones is going to jump on this bandwagon claiming that pure cane sugar is better for you than is high fructose corn syrup. I don't think this claim has any validity, but it won't be hard to convince America that pure cane sugar is somehow a healthy alternative. If this promotion works, we might see fast food places carrying Jones in an effort to associate themselves with a product which is tasty, trendy, and healthy. And when that happens, I can quit my job."
Since the past month's run-up, though, bears on the Jones page have been questioning the current valuation of the stock. Jethromoore thinks highly of Jones' product, but is skeptical of the price:
"A current P/E of around 100, and future P/E of around 50!? Doesn't this scream tech bubble style valuation at you bulls? The company may have struck a deal with Wal-Mart to spread its products, but don't forget that when it comes to prices, Wal-Mart likes to put pressure on all their suppliers to push prices down, hence, profits of Jones will go down. The company doesn't have the market share that it needs in order to take on a big company like Wal-Mart.
"I personally would have an objection to owning the company since it doesn't have any dividend history -- as if the insane valuation of the company wasn't enough. Wall Street puts way too much emphasis on growth of companies, especially in this case since the growth is considered to be near exponential for Jones."
So will Jones deliver on the success that its valuation promises, or will it end up a once-overpriced has-been? Head over to CAPS and let the community know what you think. While you're there, you can start your research on any of the other six stocks listed above -- or any of the 4,200-plus stocks on CAPS.
More CAPS Foolishness:
Starbucks is a Motley Fool Stock Advisor pick. Wal-Mart and Coca-Cola are Inside Value choices. You can check out any of the Fool's newsletters with a 30-day free trial.
Fool contributor Matt Koppenheffer didn't see these particular moves coming, but he's rarely surprised at Mr. Market's general tomfoolery. You can check out Matt's CAPS portfolio here, or visit his blog. He does not own shares of any of the companies mentioned. The Fool's disclosure policy doesn't worry about cane sugar because it sticks to diet sodas. Got to keep up that beach body, you know.
