Top-Rated Stocks the Leaders Loathe

Momentum investors love to back companies with the wind in their sails. Contrarian investors typically pick up the cigar butts the market has tossed aside. So what do you call investors who turn against winners? Sourpusses? Shorts?

Over on Motley Fool CAPS, we sometimes call them the savviest investors around. When one of our All-Star players -- those whose stock-picking prowess places them in at least the 80th percentile of our community -- sours on a top-rated stock, perhaps we should take notice. Maybe the player has found a chink in that highflier's armor or a question mark in its financial footnotes. Or maybe it's just a hunch. That's why these tables aren't lists of stocks to buy or sell -- just starting points for further research.

Here's a list of stocks that some All-Stars have recently spurned:

Considering that, on average, 96% of all CAPS investors think these companies will outperform the market, what might have turned some of our top players against these otherwise widely admired companies?

An attractive patina
Although it's primarily a copper miner, Sterlite Industries India also has its shovels in zinc, aluminum, and even power generation, with a large-scale 2,400-megawatt coal-based thermal power plant and a 110-megawatt wind-energy project. The Motley Fool Global Gains recommendation began trading on the New York Stock Exchange last June in an IPO valued at $1.75 billion and immediately became an investor favorite.

It's easy to see why. India's economy has been enjoying robust growth. It has surged nearly 10% from 2006 to 2007. Demand for infrastructure improvements at home and in the component countries has increased demand for copper, zinc, and aluminum.

Yet it's also causing concerns that economic forces will sap India's strength if its economy is becoming overheated. Inflation has spiked to nearly 7%, the highest rate in nearly two years, and analysts expect economic growth to fall sharply to 8.1% in fiscal 2009 That might not hurt demand for Sterlite's products, but it may increase the company's costs of doing business. The power-generation business has the potential to offset that, though.

According to the U.N.'s Human Development Report, coal demand by 2030 will increase 73% to 4.9 billion tons of oil equivalents, with India and China driving much of that demand. Moreover, much of India's population has no access to electricity, and coal-based plants like Sterlite's will go a long way toward meeting that need.

That's what top-rated CAPS All-Star pencils2 considers one of Sterlite's biggest advantages, as well as one of its question marks:

Reasons to like them:

1. Huge control over various metals will give the company immense opportunity as India's infrastructure rapidly expands.

2. $1.51 billion in cash with $548.41 million in debt; from fiscal 2006 to fiscal 2007 earnings tripled and cash flow production doubled. Production is expanding very quickly as well.

3. Entering the power generation business with good-sized investments (close to $2 billion). The potential in this area in India is enormous and Sterlite has a lot of experience with it.

Main risk:

1. Company's entrance into power generation market doesn't go well (this would be a lot of money down the drain).

Make lemonade from lemons
We've seen the direction that some investors think these companies are heading, but Motley Fool CAPS is more than what the pros believe, even if they're All-Stars. It's where we invite you to share your thoughts and insights and add your voice to the debate. Go ahead -- have your say. We're eagerly waiting!