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 Buffett finds opportunity in bonds, perhaps you should look there, too. Does Bill Miller think financial stocks are beaten down? Maybe a closer investigation there 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 105,000 professional and novice investors. I'm looking among them for All-Stars who've chosen low-rated one- and two-star stocks (out of five) 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:

Source: Motley Fool CAPS; Yahoo! Finance; and Capital IQ, a division of Standard & Poor's.
NA = not available.

Clean coal conundrum
We all say we want clean coal -- from politicians and environmentalists to coal companies and utility executives -- but are we willing to pay for it? Apparently not, if a recent decision to shut down what was perhaps the single highest-profile demonstration project to capture carbon dioxide emissions from coal-fired plants is any indication. Worse, similar plans in states across the country have also apparently been mothballed.

With natural gas and oil at exorbitant prices, the relative cheap abundance of coal means that as a source of fuel and energy, it's not going away anytime soon, whatever the environmentalists may desire. However, that doesn't mean we can't also accept any interim steps toward "cleaner" coal, and such incremental efforts represent the investment potential behind Evergreen Energy.

Evergreen has developed a process of applying heat and pressure to low-rank, moisture-laden coal and turning it into a low-moisture coal that burns efficiently while generating an abundance of energy. Called K-Fuel, the processing removes many of the pollutants from the coal, making it a cleaner alternative.

The abundance, cost, and widespread use of coal, along with the difficulty in obtaining true clean coal, has investors like top-rated CAPS All-Star jwfoster believing that Evergreen Energy's technology will be the solution for the immediate term, even if it isn't the long-term answer:

Coal produces bad emissions and is dirty. Evergreen's coal additives reduce coal emissions by about 80%... [It] is too crucial to ignore the fact that coal will be a primary energy source for the next 30 years. However, everyone will want clean coal additives and technology. Evergreen will be a part of that solution as states force coal plants to go clean. Even the DOE is onboard with Evergreen's technology and platform.

Still other All-Stars like MJKpayday feel that perhaps Evergreen is just an overhyped story that's still too expensive: "Evergreen and many other 'clean' companies such as solar companies remind me of the dot com bust. Yes there is a need for them and many will do well, but it's just too expensive too hyped and ripe for a correction."

With General Electric (NYSE:GE) and oil services firm Schlumberger (NYSE:SLB) signing a pact last week to develop carbon capture and sequestration technology, the goal of clean coal certainly isn't dead -- just delayed.

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 firms, sign up to join Motley Fool CAPS, absolutely free.