7 Low-Rated Stocks That Soared

Successful investing requires you to think independently and stick to your convictions. That's hard enough with stocks that are generally popular -- after all, in the stock market, there's a seller for every buyer. But it gets even tougher with stocks that can't seem to find good press or bullish investors anywhere. Of course, defying popular opinion has led many contrarian investors to great returns.

In that spirit, I've headed to Motley Fool CAPS to dig up some unloved stocks that have delivered big gains to shareholders over the past month. Our community of investors has put each of these companies on the bottom two rungs of the CAPS rating scale:

Now, given CAPS' knack for accurately gauging winners and losers, I'm not recommending that you run out and buy these stocks! An index set up to short CAPS' least-liked stocks has outperformed more than 98% of all other CAPS players. That said, CAPS players have proved overly negative on high-performing stocks such as Crocs and DryShips. Are any of the stocks in the table above the same sort of undercover rockets?

Do research? You're kidding!
That's right, the best way to figure out whether any of these stocks is worth considering for your portfolio (real or CAPS) is to roll up those sleeves and dig in a bit. What we're looking for here are stocks that have good fundamentals despite their lack of popularity -- a profitable business, good management, and some decent growth prospects.

There are a lot of beaten-down brokerages out there. Along with Bear Stearns, Merrill Lynch, UBS, and Lehman Brothers, many others have found themselves on the wrong end of the market's paddle over the past year. So why is it Bear's stock that's been jumping lately? With a market cap of just $11.3 billion now -- compared to $49 billion for Merrill and $29 billion for Lehman -- Bear is currently a fairly digestible size and has been the subject of multiple rounds of takeover rumors. The most recent of these made its way around the Street on Friday, enticing speculators to bid up the price of the stock in hopes of an announcement over the weekend. As we now know, no announcement came, and we're back once again to the simple idea that speculating on buyout rumors is not a profitable idea.

Takeover or not, though, there have been some big players taking major positions in the company since its slide. Value-oriented investment manger Barrow, Hanley, Mewhinney, & Strauss is now the largest single shareholder, with an 8.4% stake. Billionaire Joe Lewis (not the boxer) has gathered up an 8.1% stake, while Legg Mason has upped its stake to 2.9%. What's most interesting is that the majority of the stakes that these three firms own were purchased since June of last year. China's Citic Securities will soon join that list, as it has pledged $1 billion to the brokerage.

It's not surprising that sharks are circling, as the chance of Bear going bankrupt seems relatively slim and the stock has been trading at a book-value multiple well below its historical norm. On the flip side, many investors out there think that chasing companies like Bear is lunacy right now, since there's no end in sight yet for the market turmoil. A multiple of book value, they might tell you, is only of any use if the book value is solid.

CAPS players have mostly taken the latter stance. For instance, CAPS All-Star podrag recently quipped, "You would have to be on crack to like this stock." Fellow All-Star ddberg put it a bit more diplomatically late last year:

Have to believe that the big banks, especially those heavily tilted toward credit and debt, are only through phase one of the bad news. More write-downs in future quarters? Bigger write-downs in future quarters? Bear Stearns appears to be in the worst shape of all of them, so they will likely lead the way (down).

So what's your take? Is there good reason to be bullish on Bear Stearns right now? Head over to CAPS and let the community of more than 83,000 Fools know what you think. While you're there, you can start your research on any of the other stocks listed above, or any of the 5,300-plus stocks on CAPS.

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