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 (out of 5) |
|---|---|---|---|
|
Tecumseh Products |
60.7% |
(23.5%) |
* |
|
Fremont
General |
59.1% |
(38.1%) |
* |
|
Winn-Dixie Stores |
58.4% |
N/A |
* |
|
Amazon |
58.1% |
109.7% |
* |
|
Autobytel |
32.2% |
41.5% |
* |
|
Top Tankers |
29.1% |
(15.7%) |
* |
|
Libbey |
27.5% |
46.9% |
* |
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 prospects for the company have changed for the better, or that it had 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 Amazon.com.
Amazing Amazon
It was just less than a month ago that I found Amazon among the top-performing but low-rated stocks on CAPS. Was it a fluke that this Stock Advisor pick ended up at the bottom of the barrel in the first place?
Well, not quite. There are 1,120 Fools in the CAPS community who currently have a rating on Amazon. Almost half of these ratings call for Amazon to underperform -- more than enough to put Amazon on the bottom rung of the over 4,500 stocks rated on CAPS.
As the chart above clearly shows, though, Amazon has done anything but underperform. At this point Amazon is officially a one-year double, and has now returned more than 350% since David Gardner picked the stock for Stock Advisor.
Amazon's first-quarter earnings, which blew out analysts' expectations, ignited the run. Following the earnings release, the stock popped 27%. The day after that jump, instead of retracting some of its big gains, the stock continued the run and tacked on another 11%. Amazon's run has continued since then, and the company has stayed active as well. Earlier this month, it announced the acquisition of DPReview.com, announced a digital music service free of digital rights management (DRM), put increased focus on a long-tail music niche, and bought a publisher of audiobooks.
As Amazon's stock continues its run, the big question here is not whether the company can continue to produce results, but whether the results can live up to the stock's high price. With a trailing price-to-earnings (P/E) multiple of 116 and a forward multiple of 55, I can't help but think of the saying, "Don't let your mouth write checks that ...". Well, you know how it goes.
CAPS players continue to be skeptical of Amazon's stock, and have been very vocal about it. Especially notable is the number of CAPS All-Stars -- those players ranked in the top 20% -- that have slapped a red thumb on Amazon in the last month.
- BBQPorkMogul: "Yeah, they're worth 56 times earnings. Why not a multiple of 100, 500, or even 1,000?"
- Persuter: "I am extremely leery of high P/Es when the company completely dominates a fairly established market. Where is the growth supposed to come from? Amazon isn't going to be making up market share, so are we supposed to believe that the Internet retail market will quadruple over the next couple of years to make this stock worthwhile? It's moving up, no question, but not enough to drop this P/E even below 30."
- darkflame: "[Amazon] is a great company, Jeff Bezos is a great visionary, I love shopping online at [Amazon], but Amazon isn't worth this much. ... Let me say it again, it isn't worth this much. Don't believe me? ... a P/E higher than 100 means that if Amazon doesn't grow a lot (and fast), then it will take you 100 years to get as much profit as what you paid for the stock. Got it now?"
Amazon's not without its supporters, though -- for instance, TheSwener, who notes, "Amazon is continually finding ways to expand its business, despite being 'done growing' many times now. The markets of [video on demand], digital music, and others I can't think of will continue to fuel Amazon's world domination."
So do you think that Amazon's price is too much to swallow? Or is it worth every penny? 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 stocks listed above -- or any of the 4,500-plus stocks on CAPS.
More CAPS Foolishness:
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 is never going to give you up, it's never going to let you down, and it's never going to run around and desert you.
