Top-Rated Stocks the Leaders Loathe

Momentum investors are stock players who get behind companies that have the wind in their sails. Contrarian investors typically pick up the cigar butts the market has tossed aside. So what do you call investors who turn against winners? Sourpusses? Shorts?

Over on Motley Fool CAPS, we sometimes call them the savviest investors around. Not only does the 74,000-strong investor intelligence community rate thousands of stocks every day, but the players themselves get rated, too. The best of the lot -- what CAPS calls All-Stars -- consistently outperform their peers over time and are assigned ratings of 80 or greater.

When an All-Star player sours on a top-rated stock, we should probably take notice. Perhaps the players found a chink in that highflier's armor, or a question mark in its financial footnotes. Or maybe it's just a hunch. That's why these tables aren't lists of stocks to buy or sell -- just starting points for further research.

Here's a list of stocks that some All-Stars have given the thumbs-down:

Over 5,500 investors have rated these stocks, with an average 98% of them being bullish on their prospects. A similar number of All-Stars also think they'll outperform the market. What might have turned some CAPS top players against these otherwise widely admired companies?

Undermining confidence
As the owner of the Grasberg mine, one of the largest copper and gold mines in the world, Freeport-McMoRan was already well positioned to capitalize on the demand that China has generated for the build-out of its infrastructure. With the addition of Phelps Dodge earlier this year, the combined entity now wields some heft in gold, copper, and molybdenum. But it has had its mettle tested recently by the market's turmoil.

Questions loom whether the Chinese government will take further steps to cool down its hot economy and whether that could impact other sectors, including minerals like copper and gold. The U.S. economy also looks fragile, and that might spell trouble for companies like Freeport. Certainly, that's what CAPS All-Star SteveInChicago, with a 98.12 player rating, thinks will be one of the factors impacting the gold digger.

Commodities are likely to get crushed in a bear market. The gold side of things worries me, but I suspect that the gold run will stagnate for a few weeks to get the drop going.

Bulls, of course, have a different outlook. CAPS player auminer68 gave investors a complete analysis of Freeport McMoRan's situation and potential. Although covering all of the company's positions in each of its metals, he goes on to point out that copper is the plating that protects this investment.

So while Freeport is capable of well over $4 billion in annual revenues from other metals, copper is by far their primary product. FCX has very low unit costs on its copper production, which would enable the company to weather any downturn in copper prices while still generating substantial cash flows. Their net unit cash costs per pound of copper produced thus far in 2007 is $0.65, though that figure rose substantially in the third quarter to $1.05 due to several factors. The major reason was the fact that production fell dramatically at the company's Grasberg mine in Indonesia while the company works through an area of lower grade ore. Second quarter production at the mine was 298 million pounds, which fell to 177 million in Q3. The company expects to be working this area of low grade ore at this mine until Q4 of 2008 as part of their planned mining sequence, and will therefore continue to experience lower production for the next 12 months at Grasberg.

That concise analysis quickly vaulted to the top bull pitch position. You can read the complete pitch by clicking here. It provides a wonderful template for sounding out your own thesis before investing in any company.

Make lemonade
We know both sides here, but Motley Fool CAPS is more than what some pros think, even if they're All-Stars. It's where we invite you to share your thoughts and insights and add your voice to the debate. Go ahead and have your say.

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