Think of investor sentiment as a pendulum that swings in tandem with a company's share price. When investors begin to think highly of your company, its stock might also start heading in the right direction. Alas, you can rarely tell when investors are warming to a stock until after it's made that upward swing.
An astrolabe for investors
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 81,000-plus investors, offer a great way to monitor investor sentiment. Like astronomers scanning the skies, investors can follow a stock's stars through its CAPS rating trend, tracking investor sentiment to help determine the best time to invest. Let's look at one- or two-star-rated companies that have recently enjoyed a bump in investor confidence, and see whether the stars are really aligning in their favor.
|
Company |
CAPS Rating |
Recent Price |
1-Yr Return |
|---|---|---|---|
|
Millennium Pharmaceuticals (Nasdaq: MLNM) |
*** |
$16.06 |
39.3% |
|
Abercrombie & Fitch (NYSE: ANF) |
*** |
$72.21 |
(6.6%) |
|
Wendy's (NYSE: WEN) |
** |
$25.20 |
(23.8%) |
|
Starbucks (Nasdaq: SBUX) |
*** |
$19.05 |
(47.5%) |
|
Nektar Therapeutics (Nasdaq: NKTR) |
** |
$7.36 |
(48.9%) |
Obviously, this is not a list of stocks to buy -- just a starting point for further research. Still, consider the case of Motley Fool Stock Advisor pick Time Warner. It got downgraded by CAPS investors in mid-October, shortly after AOL announced a 20% cut in its workforce. At the same time, the parent company's shares, which had just started to climb, began sliding again. But now CAPS investors are looking up again, and Time Warner's shares may just follow suit.
A hot, steaming cup of rebound
Starbucks, once a wunderkind, has lately felt like someone dumped one of its venti cups in its lap. Shares have shriveled over the past year, and some investors think the company's too huge to enjoy a major rebound, making it a candidate for the worst stock of 2008. Moreover, McDonald's (NYSE: MCD) will be moving into the premium coffee arena, and Starbucks faces competition from a growing list of rivals, ranging from old hand Dunkin' Donuts to up-and-comers like Peet's (Nasdaq: PEET).
Yet CAPS investors aren't so sure that Starbucks is doomed. More than 4,700 investors have poured their opinions on the java giant into CAPS' cups, and more than 83% of them think it's their cup of tea ... er, coffee. Three-quarters of CAPS All-Stars agree. Starbucks founder Howard Schultz is back on board to lead the company, and he plans to focus on what the company does best: selling coffee.
CAPS investor bmark39 thinks the founder's vision and leadership are what Starbucks needs to resume its growth trajectory:
With the news that Howard Schultz is returning to the helm, Starbucks is poised to bounce back and reassume its place as a leader in the industry. The company has foundered over the past year, but Howard's vision and leadership may well be what's needed to burnish this erstwhile star once again.
Similarly, CAPS player nextbillionaire, thinks the coffee house's share price currently doesn't leave room for future growth -- an unfeasible position, particularly given Schultz's return:
Starbuck's valuation right now is priced as if there is no growth left for the company. Although the American market seems to be oversaturated, there is still plenty of foreign potential for them. I'm a believer in their products and business model and if they target the right markets for the next year or two they should be in good shape. Shultz's return to the company is good news and I feel that he'll recognize what has to be done to restore some value to the company he built.
Shine your starlight
Will Starbucks refill its cup of profits? Well, we haven't yet heard from you, and at Motley Fool CAPS, every investor's opinion counts. Your voice could determine whether these stocks become shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?
