Piggybacking on the picks of great investors and money managers can often lead to big rewards -- especially when the stocks in question have been punished. If Warren Buffett's buying railroads, perhaps you should look there, too. Does Bill Miller think financial stocks are beaten down? Maybe investigating more closely will help improve your own results.

Over on Motley Fool CAPS, our top-rated All-Star players represent the best 20% of our more than 82,000 professional and novice investors. I'm looking for those who've chosen one- and two-star stocks to outperform the market. The majority of CAPS investors may consider these stocks losers, but if our ace contrarians think otherwise, these picks might be worth a look.

These five low-rated stocks recently got the nod from the cream of our CAPS investors.

Company

CAPS Rating

1-Year Return

CAPS All-Star

Player Rating

Sulphco (AMEX: SUF)

*

(12.6%)

dude59

89.67

XM Satellite Radio (Nasdaq: XMSR)

*

(28.9%)

VTEngineer2001

92.05

Overstock.com (Nasdaq: OSTK)

*

(30.5%)

TrulyJQ

98.93

MBIA (NYSE: MBI)

*

(87.7%)

bingobum92806

93.09

IndyMac Bank (NYSE: IMB)

*

(87.8%)

mordante

98.62

Source: Yahoo! Finance. Returns as of Jan. 18.

Typically, there's a low-rated stock in our list that has also enjoyed a large one-year run-up in its stock price. Those always make me leery. Not so this week, as all five stocks are down double-digit percentages over the past year.

Their word is their bond
When you consider the condition of the bond insurance markets these days, picking MBIA as an outperform seems like whistling past the graveyard. Not only are MBIA and Ambac suffering a crisis of confidence these days as credit-default prices soar -- with investors stampeding toward the exits to protect themselves against a default by the insurers -- but they've also cut their dividends, their credit ratings are being slashed by the ratings agencies, and they have a new rival in the form of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B).

One scenario for salvation could have involved getting rescued by someone with a sterling rating of their own. Unfortunately for MBIA and Ambac, Warren Buffett has opted to compete for their business rather than bail them out. At least one analyst believes that Ambac's ability to survive "is now in material jeopardy." MBIA may very well be the next domino to fall.

When he gave MBIA the thumbs-up, CAPS All-Star jerry1027 admitted that there could be additional pain to come for the bond insurer, but he believes there's little room left for further downward pressure. "The financials have just about hit bottom and are ready for a comeback. I could be calling this a little early, but ...."

Others, like CAPS player MikeRehling, think Buffett's entry into the field actually validates MBIA's business model:

'Earns' its income over long periods, up to 30 years, but the fees are paid 'upfront' so 35 to 50% of their earning are 'baked' into the cake. Someone will cut a great deal to 'fix' the balance sheet, keep the AAA rating, and their municipal customers won't 'jump' elsewhere. This one is a steal with over 7% in dividends, and even if they 'halve' the rate it will still appreciate while paying out at 5 year T's. I like the future of MBIA and their model, and so does Buffett!

Whatever troubles or cloudy future Ambac may be facing, some CAPS investors still see MBIA surviving. All is doom and gloom now, but NeroSagetrade thinks the company is still solid enough to survive and that the battering its stock has taken is undeserved:

Love it, love it, love it! MBIA is a mortgage insurer and given the current state of the mortgage environment its having to pay higher fees to secure its mortgages. Well that's fine and dandy that a rating downgrade has been looming from Moody's for four months now, but MBI has raised over 2.3 billion dollars in capital and now stands firm to maintain its AAA rating from S&P. Personally I feel MBI could survive the downgrade to AA easily at these levels and the overreaction to the downside on a possible downgrade by Moody's is ludicrous. Well below book, 2 times earnings, and all they have to do is slash that dividend to preserve capital. WAY overdone sell-off.

Finding value under rocks
So there you have it -- five low-rated laggards that have gotten big endorsements from some of the best and brightest investors in the CAPS community, although there are always some who are not so sure. If you want to add your two cents on these or any other companies, sign up to join Motley Fool CAPS, absolutely free.

Berkshire Hathaway is a recommendation of Motley Fool Inside Value and Stock Advisor. You'll love the 30-day free trial subscription available to any of the investment newsletters. The Motley Fool owns shares of Berkshire Hathaway.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.