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 its investment holdings are chock-full of bonds backed by failing subprime loans.
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 |
|---|---|---|---|
|
JER Investors Trust |
43.1% |
(20.8%) |
** |
|
Bell Microproducts |
36.3% |
37.1% |
*** |
|
WCI Communities |
35.5% |
(41.9%) |
* |
|
Accredited Home Lenders |
34.5% |
(68.3%) |
* |
|
Ariad Pharmaceuticals |
22.2% |
3.6% |
** |
|
XM Satellite Radio |
21.3% |
3.6% |
* |
|
Trump Entertainment Resorts |
20.5% |
(64%) |
* |
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 Bell Microproducts.
Ringing the Bell Micro
Bell Microproducts was the first of the group to jump out at me, since not only has the stock seen solid gains, but the rating on CAPS has jumped from a lowly one star to a more enticing three in the past month. There's not a whole lot of commentary on CAPS to go along with the picks, but wrath481 said, "[Bell Micro] has recently in the last 2 days moved above the final resistance line that stems downward from the huge spike back in [the year 2000]. Even on a monthly chart, the price will hop over that resistance line on the first trading day of July." I guess I'm not quite sure what that means.
To clarify things, LarkinSoft added, "Bell broke recently below its pennant formation, after accumulating 90% of the stock into the institutions' hands." Yeah, I'm pretty lost there too. Potentially more notable, though, is the fact that two Wall Street firms, Needham and Caris, have gotten behind the stock. How about we look at the company itself?
Bell Micro has been out of compliance with Nasdaq listing requirements for a while now, as it continues to review stock options granting practices (yup, it's one of those companies). It recently announced that it has gotten an extension for complying until October 22nd. However, the company doesn't seem to see particular urgency as it stated in a recent press release that it "believes that additional time may be granted by Nasdaq should it be necessary."
The most recent financial announcement from the company was in early August when it gave preliminary sales numbers. Year over year top-line growth was strong, though most of that growth appeared to come from an acquisition and some favorable currency movements for overseas sales.
The company is a value-added distributor of a range of tech products such as storage systems, servers, and software, and has seen relatively sluggish revenue growth since the dot-com bust. Profitability has been spotty over the same period and margins are razor-thin when it is in the black. Bell has also been burning cash on balance over the past few years that it's actually reported cash flow numbers.
In short, the vicissitudes of the market could push this up over the short term, but it strikes me as a pretty mediocre business and a lousy bet for a long-term investment.
So is Bell Micro better than I give it credit for? Or will the stock show its true stripes over time? 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 4,900-plus stocks on CAPS.
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