Surprising Low-Rated Stocks the Leaders Love

Piggybacking on the picks of great investors and money managers can often lead to big rewards -- especially when the stocks in question are beaten down. 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 All-Star players represent the best 20% of our more than 100,000 professional and novice investors. I'm looking among them 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.

Here are a few stocks that have gotten the nod from the cream of our CAPS investors:

Sources: Motley Fool CAPS and Yahoo! Finance.

Typically, there's a low-rated stock that has also enjoyed a large one-year run-up in its stock price, leaving me leery. Sure, stocks can continue to run, but such picks' high valuations -- and low ratings -- leave me cold. Not so this week, because all the companies have suffered appreciable declines in their stock prices.

Tuning out the Shack
Backing the wrong jockey can be a losing proposition at the racetrack or in the stock market. Electronics retailer RadioShack ran for the roses with wireless carrier Sprint Nextel (NYSE: S) and sent Verizon (NYSE: VZ) off to a different stable. Unfortunately, that horse still hasn't come in for the retailer: The earnings report RadioShack released the other day has some feeling buyer's remorse. RadioShack, which doesn't have a large presence in selling flat-screen TVs and offers an eclectic assortment of electronic components, has had a hard time differentiating itself in the minds of consumers.

A year ago, the satirical commentary site The Onion ran a hilarious send-up of CEO Julian Day's first nine months on the job. "There must be some sort of business model that enables this company to make money," it spoofed Day as saying, "but I'll be damned if I know what it is." That might well describe how investors still feel about RadioShack today.

In fact, investors like NeroSagetrade just might have had that humorous take in mind when he wondered back in October just who shops at RadioShack.

Seriously, do you even know anyone anymore that goes to a [RadioShack]? Their stores seem to get smaller and more sparse each year and I think to myself, "how do these guys even get by anymore?" Revenues are slated to fall by almost 10% in 2007 and should see another slow bleed of 2% in 2008, although earnings per share are somehow expected to rise. If there's anything I've learned about this stock is that its poor quarters RARELY come in singles, so expect quite a few earnings misses to come.

Yet some investors, like CAPS player RetailExpert, are encouraged about the company, particularly as an alternative to the endless wandering a shopper can do inside one of the big-box competitors. Here's the pitch from late February: "[RadioShack] offers a great substitute to entering a big box retailer with out much additional cost and much greater service. The announcement of their intent to enter the gaming industry will impact positively their influence in the electronics industry and meet the needs of many of their current customers that have had to go elsewhere to meet their gaming needs."

While the race isn't over yet, maybe being bought out by one of its rivals would ultimately save it.

Finding value under rocks
So there you have it -- five low-rated laggards that have 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.