Unloved Stocks Ready to Shine

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 has made that upward swing.

An astrolabe for investors
But Motley Fool CAPS' ratings, aggregated from the opinions and accuracy of 85,000-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 recently enjoyed a bump in investor confidence and see whether the stars are really aligning in their favor.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Still, consider the case of chicken processor Tyson Foods. Although CAPS investors weren't particularly enamored of the company, last September they downgraded Tyson's stock to the lowest one-star rating -- just as the stock started a decline. Yet CAPS investors were ahead of the curve in January, boosting Tyson's rating out of the basement before the stock began moving off its lows.

Tarnished fashion plate
Tyson isn't the only meat producer feeling the pinch of higher grain prices while demand for corn to make alternative fuels like ethanol has driven them up. Pilgrim's Pride and Smithfield Foods (NYSE: SFD) are also trading much lower over the past year, as costs have risen dramatically. Only Sanderson Farms (Nasdaq: SAFM) seems to have bucked the trends: Its shares are valued higher, though they are well off their highs.

Retail prices for chicken and pork have already increased to offset some of these costs, but Tyson has said that its costs are much higher than it forecast just three months ago, so it will begin another round of price increases. While this seems to be a dour outlook, perhaps there is solace in the reports that ethanol just might not be the savior of our reliance on fossil fuels. The magazine Science recently said that biofuels like ethanol actually generate more greenhouse gases than fossil fuels do, when you account for all of their inputs. While politicians have hitched their wagons to ethanol, particularly in this election year, the damning scientific report may signal that grain prices may soon peak and then retreat.

That might not be soon enough for Tyson and other meat producers, though. The company might end up having to rely more on international growth. It says it expects that portion of its business to rise to $5 billion by 2010.

CAPS All-Star stevendecker thinks the high cost of feed will lead to industry consolidation, which Tyson would be able to capitalize on because of its size.

Rising feed prices could lead to consolidation in the industry. [Its] large market share and vertical [integration] make them my post shake-up favorite. Look for meat (Chicken) prices to rebound with some consolidation.

Another All-Star, hondo928, thinks that Tyson's lack of good governance principles ultimately will lead to further declines. Last November, he noted on his blog that its fundamentals just didn't add up to a winning formula.

Growth is poor at only 9% and with nearly 3 Billion in debt while the cash is just 50 million I began to realize this company while probably not going out of business might be in some trouble. Stock prices have been declining, and I don't think they are out of the woods yet. My guess is when earnings come out, Tyson could have some not so great news.

While higher prices might be in the offing for Tyson products, there's only so far the producer can go to preserve profits. Unlike with packaged food companies, there's little to differentiate the providers of poultry, beef, and pork in the minds of consumers, so they could switch companies easily.

Shine your starlight
So is Tyson tied up, or can it generate more chicken feed for investors? 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. Because it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?