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 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 110,000 professional and novice investors. I'm looking amongst 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:


CAPS Rating (out of 5)

Est. Long- Term EPS Growth

CAPS All-Star

Player Rating

Dillard's (NYSE:DDS)





Zions Bancorp (NASDAQ:ZION)





Ambac Financial (NYSE:ABK)





M/I Homes (NYSE:MHO)





Radian Group (NYSE:RDN)





Source: Motley Fool CAPS; Yahoo! Finance.

Can you hear me now?
Despite suffering the indignity of getting kicked off the S&P 500 list, persistent downgrades by ratings agencies, and a general feeling that it will soon tailspin into oblivion, Ambac Financial has also shown it has the fortitude to survive. It posted more than $500 million in collateral Tuesday, supporting its guaranteed investment contracts, as a means of communicating that it has "ample liquidity to manage our commitments going forward."

More communication may be necessary, though, because investors like CAPS player Citadel7 feel the situation will ultimately lead to slow starvation.

This is a bond insurer that has a terrible subprime portfolio. $800 billion worth of subprime loans will reset in the second half of this year (2007). $18.7 billion worth of subprime loans are sitting on AMBAC's books. The exposure is equal to 284.4% of statutory capital. Leverage (Face Value Bonds/Statutory Capital) is 80.8 to 1. AMBAC's loss of AAA status in the debt markets deprives it of the ability to raise funds competitively, which means it will soon starve to death.

A lien on the future
Mortgage insurer Radian Group is another financial company tied to the housing implosion that recently related some much-needed good news. It announced that not only were first- and second-lien claims lower than forecast for the second quarter, but it's now insuring mostly prime mortgages and its market share has climbed. It also said it was putting a new person in charge of the business, though the previous president will stay as a consultant.

That was the kind of news investors needed to hear. Shares closed up 30% on the day of the announcement, and CAPS players like rabid999 figured it was enough to ensure their continued viability.

Several reasons to be positive: Recently reiterated confidence in company [fundamental] strength, 92% of new orders are to insure prime loans, recent management restructure, this quarter paid less claims than originally expected, great dividend as long as they don't suspend it. If they survive, which I think they will, this will [yield] huge returns.

Not my department
Is it time for some positive news out of the retail sector -- finally? Not according to the same-store sales numbers that continue to suggest the mall is still dead. You'll find the discounters like Wal-Mart (NYSE:WMT) and deep discounters like Family Dollar (NYSE:FDO) actually reporting increases as consumers try to stretch their dollars as far as they can go, while upscale department stores like Dillard's are still having a rough time of it.

That's leading some investors like CAPS player crazyrap2009 to suggest that while there are some positive influences, he or she looks for someone to bail the company out.

I think DDS is a great company. If you think back to about 3-4 years ago or longer. [Dillard's] found [their niche] and right now. I believe [Dillard's] is trying to compete with Macy's and [Wal-Mart's] customers. What they need to do is go back to how they did business before, like 5 years ago. They will find [their] company does [extremely] better long term. Right now, I do expect that this company goes out of business. The one reason why i keep looking at it, is to the fact that I am hoping someone takes over this company and saves the jobs, and saves the Dillard name from being bankrupted.

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