Momentum investors love to back companies with 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. When one of our All-Star players -- those whose stock-picking prowess places them in at least the 80th percentile of our community -- sours on a top-rated stock, perhaps we should take notice. Maybe the player's found a chink in that highflier's armor or a question mark in its financial footnotes. Or it could be 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 recently spurned:
|
Company |
CAPS Rating (5 Max) |
5-Year Estimated EPS Growth |
CAPS All-Star |
|
|---|---|---|---|---|
|
Foster Wheeler |
***** |
15.0% |
89.65 |
|
|
CVS Caremark |
***** |
16.0% |
91.87 |
|
|
Suntech Power |
***** |
34.3% |
99.26 |
|
|
Berkshire Hathaway |
***** |
NA |
98.51 |
|
|
China Mobile |
***** |
24.5% |
90.56 |
Sources: Yahoo! Finance, Motley Fool CAPS.
Considering that 97% of all investors rating these companies think they will outperform the market, what might have turned some of CAPS top players against these otherwise widely admired companies?
Not managing well
Engineering and construction company Foster Wheeler has been enjoying the building boom that the oil, gas, and petrochemical industries have engendered, as have rivals Fluor
The company increased its profits nearly 24% to $78.1 million in its most recent quarter on revenues that rose 23% to $1.47 billion. Yet the latest quarter was negatively affected by the repeal of an Italian power-price tariff, along with a $5 million charge the company took against a reimbursable contract involving a dispute with a client. There appears to be plenty of opportunity left to build future profits.
Although some top-rated investors have turned sour on Foster Wheeler, there's been a dearth of explanations -- only five out of 138 pitches are bearish. Rather, with some 97% of the 1,150-plus investors rating the company to outperform the market, the consensus opinion would seem to back CAPS investor paats78, who opines that the softness in the North American market is essentially a negligible consequence and that investors should exploit the market's reaction to it:
They announced good earnings beat estimates by 12 cents per share. The stock got beat up [because] the CEO shared a softness in the [North American] market but this sector is about 10% of total revenue for the company. Their backlog has grown and they will continue to have earnings growth. [Definitely] a buy.
Similarly, top-rated CAPS All-Star ww2004 believes there are additional areas for Foster Wheeler to experience growth that we should not overlook.
This is an infrastructure play. Q1 08 earnings are good and backlog is increasing. Clean coal technology and coal-to-liquid will be key areas Foster Wheeler will benefit from.
Make lemonade from lemons
We've seen the direction some investors have indicated they believe these companies are heading, but Motley Fool CAPS is more than what the pros and All-Stars think. It's where we invite you to share your thoughts and insights. Go ahead -- have your say. We're eagerly waiting!
