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 |
|---|---|---|---|
|
Hemispherx Biopharma |
43.5% |
(17.5%) |
* |
|
DryShips |
32.5% |
629% |
** |
|
Medis Technologies |
32% |
(45.2%) |
* |
|
USANA Health Sciences |
26.7% |
7.6% |
* |
|
Imergent |
25.2% |
71% |
* |
|
Home Solutions of America |
23% |
(23.8%) |
* |
|
General Motors |
22% |
14.8% |
* |
Now I'm not recommending that you run out and buy these stocks! Their low ratings are a big, flashing red light. CAPS players have been pretty adept at picking out good stocks, and even better at pointing out bad stocks to avoid. In fact, an index set up to short the least-liked stocks in CAPS has outperformed nearly 96% of all other CAPS players.
In other words, most stocks that are rated with one star in CAPS are likely to underperform. However, CAPS players aren't perfect. They've been overly negative on stocks such as Crocs and DryShips, both of which have delivered seriously impressive returns to their investors.
So the question is whether any of the stocks in that table might be one of those undercover rockets. To kick off your research, here are some of my thoughts on none other than -- DryShips.
A tearful farewell?
As I've tracked this group of low-rated outperforming stocks over time, it's been hard to miss the performance of DryShips. Week after week the stock continued to be rated a rock-bottom one-star by CAPS players, despite the fact that it just kept going up.
While I try to limit how often I include it in this list (for fear of burnout), I couldn't help but put it in this week. It's a big week for DryShips on CAPS; the stock has left the bottom-dwelling land of the one-stars and now sports a snazzy second star -- meaning that this could well be the last we see of DryShips on this list.
I thought a look back at a little DryShips history might be appropriate.
It was back in early 2005, not long after DryShips' IPO, that Kathryn Welling wrote a scathing column about the company and its chairman and CEO, George Economou. After running aground between its IPO date and early 2006, DryShips started to heat back up. In September of 2006, my fellow Fool Stephen Ellis wrote an article of his own taking a critical look at the company. DryShips found it necessary to volley back, to which Stephen returned a shot of his own.
On CAPS, some of the very best players were bearish on the stock from the beginning. Ctmedic00 called the stock "a scary rip off" back in January, Allstar13913 said "this baby is going to bankruptcy," and former Top Fool TMFEldrehad was one of the first CAPS players to slam the thumbs down on the stock. Even I got a bit critical the first time this screen turned up the company.
But despite all this, the company and stock have had incredible runs. As you can see above, the stock is up an astronomical 629% over just the past year. That's pretty much unheard of. And now it seems the CAPS tide is starting to turn.
MoreCash4Me, who has rated the stock an outperform, recently said that "at $25 this was a great pick. At $100 it still has room to move. Undervalued even now. I expect a long term growth and great reward with little risk." And though CAPS All-Star KatWoman50 has noted the concerns raised over the CEO, she also rated the stock an outperform because she likes the high degree of insider ownership and she's hoping to catch some more of the comet ride that the stock has been on over the past year.
So are CAPS players smart to get bullish on DryShips? Or is it still a disaster waiting to happen? 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 5,000-plus stocks on CAPS.
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