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
April showers may bring May flowers, but when it comes to reading retail sales reports, you've gotta back it up a month and look at the March to April period. That's because the Easter holiday can fall anywhere between March 22 and April 25 -- and retail fortunes often rest with its timing. Many stores count on the holiday to drive sales.

The so-called Easter shift this year pushed the holiday into April, and the economy is still too weak to underpin any growth without it. With unemployment running north of 8% and the nation losing 600,000 jobs a month, not even retail titan Wal-Mart (NYSE:WMT) can buck the trend. The mega-discounter has been one of the few bright spots in this recession, as consumers opt for its "everday low prices" strategy. But its March same-store sales, although up 1.4% year over year, were weaker than the 3.2% rise analysts had anticipated.

Limited Brands fared even worse, reporting a 9% drop in comps. However, that was a more positive outcome than the 12.3% decline Wall Street was expecting, and a lot better than what other specialty retailers posted. American Eagle Outfitters (NYSE:AEO), for example, saw comps drop 16%, while Zumiez (NASDAQ:ZUMZ) was down 17.9%.

Investors may be getting themselves all in a lather over the performance of Limited's Bath & Body Works chain; comps there declined less than at its other signature label, Victoria's Secret. CAPS member cb766 chose Limited to outperform the market because of its bath and beauty supplies:

Bath & Body Works and the bath & body line from Victoria's Secret carry good gift ideas for spring occassions (bridal showers, baby showers, easter baskets etc.). Good prices.

Good thing, too. Angry customers have filed a number of lawsuits, alleging that undergarments sold by Victoria's Secret caused rashes and skin ailments; plaintiffs are trying to get the cases consolidated as a class action. Limited Brands scoffs at the allegations that formaldehyde is causing the irritation, noting that its bras are formaldehyde-free, or have at worst trace amounts that won't cause any health problems.

With April same-store sales at both chains expected to decline only in the mid-single digits, Limited Brands' March-April sales effort may indicate that the worst of the slump is behind it.

Shine your starlight
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 shining brightly, or about to collapse. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?