Finding a once-loved stock poised to make a comeback can garner huge returns. That’s not unlike butter. Temporarily out of favor in the mid-20th century, butter is making a comeback, thanks in part to a Wisconsin law that allegedly prohibits butter substitutes to be served in state prisons.

Similarly, at the Motley Fool CAPS investing community, three-star stocks that have moved upward to four or five stars have been profitable for investors. As a matter of fact, in our first full year of data, newly minted four-star stocks were the most profitable, returning 41%. So today we are going to look for three-star stocks with potential for a rebound.

So far this year, Vertex Pharmaceuticals (NASDAQ:VRTX) and Gushan Environmental (NYSE:GU) have risen from a three-star rating at the beginning of the year to their current four-star ranking while returning 41% and 34%, respectively, during the same period. Not to be outdone, Massey Energy (NYSE:MEE) has accomplished the same feat while returning 81% so far this year. The tricky part is finding 3-star stocks poised to move up in the CAPS world.

With that in mind, using our CAPS screener tool I set out to unearth potential fallen angels, those three-star stocks that have potential to reap huge gains if they can return to their former glory. These once-respected stocks by our Motley Fool CAPS investment community were rated as four or five stars at the beginning of the year, but have since fallen on hard times with their three-star rankings.

They also have:

  • Market caps greater than $100 million.
  • Price-to-earnings multiples less than 10.
  • Price-to-book multiples less than 1.0.


Current Price

% off 52 week high

Forward 2009 P/E


American Capital (NASDAQ:ACAS)





MF Global (NYSE:MF)





Western Refining (NYSE:WNR)





Remember, a screen is only a first step in finding tomorrow's best stocks. These three companies may be worth further due diligence. If so, feel free to discuss with the rest of our 110,000-plus-person investing community at Motley Fool CAPS.

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Bryan White does not own shares of any company mentioned in this article, but he does prefer butter over margarine. Vertex Pharmaceuticals is a Rule Breakers selection. MF Global is a Global Gains recommendation. American Capital is an Income Investor pick. There's no substitute for The Motley Fool's disclosure policy.