Unloved Stocks Ready to Shine

Think of investor sentiment as a pendulum that swings in tandem with a company's share price. When investors begin to think highly of your company, its stock might also start heading in the right direction. Alas, you can rarely tell when investors are warming to a stock until after it's made that upward swing.

An astrolabe for investors
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 130,000-plus members, offer a great way to monitor investor sentiment. Like astronomers scanning the skies, investors can follow a stock's stars through its CAPS rating trend, tracking investor sentiment to help determine the best time to invest. So let's look at previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence and see whether the stars are really aligning in their favor.

Source: Motley Fool CAPS, Yahoo! Finance. EPS = earnings per share.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too. 

The sun's always shining somewhere
With aging investors joining aging bikers, it's easy to see why many consider Harley-Davidson past its prime. Warren Buffett's Berkshire Hathaway (NYSE:BRK-B) gave the motorcycle maker a jump-start earlier this year with a $300 million investment, as did Davis Selected Advisors. But with more than $1 billion needed to shore up its financing arm, it wasn't until Harley was able to extend a $500 million loan agreement, which had been set to expire at the end of March, that it could feel it got its clogged motor running again.

Yet it seems the same problems remain, splattered like bugs on Harley's windshield. Almost a quarter of the $2.8 billion in loans Harley made last year were fueled by subprime loans from its financing division, causing it to write down $80 million of debt last year. Further defaults may be on the horizon as unemployment rose to 8.5% in March and some 660,000 new jobs were cut.

As sales continue to falter, Harley plans to cut back production 10%, to 273,000 bikes this year, and will be laying off 1,100 workers over the next two years. Contrast that with Honda (NYSE:HMC), which was able to report strong motorcycle sales even as its auto unit declined.

The Harley brand remains a strong selling point for the future of the company, but is the cachet getting stale? Although Harley's latest advertising gambit tries to keep that edgy tone -- "Screw it. Let's Ride," is a tagline on a two-page ad in The New York Times -- look where it ran: not exactly the medium of badass bikers.

Harley has been sustained for years now by sales to middle-aged doctors, lawyers, and accountants. When your image is more closely associated with weekend warriors than motorcycle gangs, you're in danger of losing your icon status. If I see Buffett strapping on leather, I'll really believe Harley has reached its nadir.

Still, CAPS member Quietman58 thinks Harley-Davidson is fronted by some smart people, and while some investors in the CAPS community think the loan portfolio may still be problematic, at the sub-$10 price it was offered at last month, Quietman58 believes it made for an attractive investment:

It still has good management. Its new sporster buy in program should help attract new customer base. The brand name and the following tell me it is not going to fold anytime soon. Add in the price and it should be a great value stock

Shine your starlight
So are these stocks driving ahead or ready to crash? It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Then weigh in with your own thoughts on which stocks you think are shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?