The market may take Wall Street analysts' downgrades seriously -- at least for a day or two -- but here at The Motley Fool, we don't. Instead, we pay much closer attention to the collective knowledge of our 170,000-plus Motley Fool CAPS members. When they downgrade a stock, I like to take a second look to see why.

Below, I've listed three stocks that our CAPS members have downgraded to a lowly two-star rating over the past six months:


Rating 6 Months Ago*

Rating Today*

Add to My Watchlist

Puda Coal (AMEX: PUDA)




Curis (Nasdaq: CRIS)




Digital River (Nasdaq: DRIV)




CAPS rating out of 5 stars.

A lump of coal
Puda Coal has taken a turn south along with Chinese reverse merger stocks in a similar story to Duoyuan Global Water (NYSE: DGW) and Advanced Battery Technologies (Nasdaq: ABAT). And the news hasn't gotten better recently. Shares were halted a week ago with "news pending," and investors have been stuck in limbo ever since. To make matters worse, this week a number of law firms tripped over themselves running to announce class action lawsuits on behalf of shareholders. At best, the waters are treacherous going forward and I could see this being a one-star stock before long.

Puccini3005 is already having second thoughts about giving Puda a thumbs up on a limit order but was saved from a lump of coal by trading this stock on CAPS before putting in an order with a broker:

oh man, I wish I could have this one back... This opened on a caps limit order for what I thought at the time would be a very attractive entry point. I'm oh-so-grateful I didn't have a corresponding buy limit.

Beware of the hot pharma stock
Drug researcher Curis has been on a nice run since the company received positive results from its skin cancer treatment trial with Roche subsidiary Genentech. But the company has gathered a few red thumbs on CAPS from investors who've seen this story before. mdriver78 isn't buying the run-up saying:

Spike in price on reports of success in Phase II Trials never seems to hold up and expect the stock to drift back from wince it came.

Curis is a ways from generating any significant revenue on its cancer treatments and as exciting as its products may be a negative announcement can crush the stock overnight. If you want to see how fast tides can turn take a look at how fast MannKind (Nasdaq: MNKD) popped and plunged when FDA rulings came out.

Trouble brewing in e-commerce
E-commerce provider Digital River's stock has recovered from losing its biggest customer Symantec (Nasdaq: SYMC) two years ago but profits have yet to come back strong. The company currently trades at a lofty 84 P/E ratio and any slipups could send the stock reeling. Buffalonate makes a simple bearish pitch saying: "Drastically overpriced."

joe951 thinks competition will play a role in this stock underperforming:

In the past year I have seen a few newer providers of similar services that offer more features, and much better price points. I think their customer churn from (adding fees) as well as this new better competition will make this stock underperform.

Worth a second look
A stock upgraded to four or five stars has earned a little more due diligence, if not a spot on My Watchlist. A one- or two-star rating warrants a second look at your investment thesis and may signal that it's time to sell. Either way, the collective wisdom of the CAPS community can help steer Fools toward winning investments.

Fool contributor Travis Hoium does not have a position in any stock mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

Digital River is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.