7 Surprising 5-Star Stocks

Seventy-seven companies are reporting earnings today, and the rest of the week will be even more aggressive. That's right, we're knee-deep in earnings season. What this means is that phrases such as "less than expected," "missing analyst estimates," and "lowered 2007 guidance" are giving many investors restless sleep and indigestion. What's a long-term investor to do?

In his book The Intelligent Investor, Ben Graham introduces readers to a charming but manic-depressive fellow who goes by the name Mr. Market. Mr. Market's game is to pay you house calls on a daily basis to persuade you to buy or sell the stocks of businesses he owns or wants to own. Because of Mr. Market's bipolar affliction, he will sometimes show up at your door fantastically excited about the prospects for the future, will want a sky-high price for his stocks, and will similarly offer you premium prices for yours. On other occasions, he will become inconsolably depressed about what the future may hold and will offer to sell you his wares at prices as low as pennies on the dollar.

As an investor, you have to figure out the value for the items that Mr. Market is hawking and buy from him when he offers low prices and sell to him when he gets too excited about certain items.

So here are the week's five-stars on sale, as identified by your fellow Fools on Motley Fool CAPS. Each of the companies below earned a five-star rating (the highest) among our community of investors just 30 days ago.

Of our seven stocks this week, four have fallen to a lower rating: Cascade Bancorp dropped to four stars, and Intervest Bancshares, GSI Commerce, and Marten Transport all fell to three. The remaining three stocks all held fast at five stars.

King no more?
I couldn't help noticing that wireless value-added-services provider Kongzhong made the cut for this week's list. That's notable because Kongzhong continues to be one of the most popular stocks in the CAPS universe. Back in December, CAPS members voted for it as the Best Small Cap for 2007, and though the ratio is down 1% since I wrote about Kongzhong's year in review, 97% of the 768 votes on the stock in CAPS have been bullish on the company.

I'll admit, it was easy to feel good about Kongzhong toward the end of the year, since the stock was up 76% from the lows it hit last August. What's making me scratch my head, though, is that the first month of the year hasn't really brought anything groundbreaking on the news front for the company, yet the stock is down 20%. And so goes the world of small-cap investing, right?

The New Year did get off to a rocky start when WR Hambrecht, one of the top Wall Street firms that we're tracking in CAPS, decided to initiate the stock with a "sell" rating. Since then, the only big news to come out of the company was that it now has a permanent replacement at the CFO spot. While this didn't seem to be any help stopping the stock's slide, I'd think it would make investors feel at least a little better -- though nobody likes to see a CFO leave in the first place.

There are CAPS players who have their reservations -- mainly the difficulty of investing in Chinese companies in general and the projected decline in earnings for Kongzhong from '06 to '07 -- but the majority still remain distinctly positive. CAPS All-Star wutangfinancial recently said that he has "no choice but to be long a company that takes a successful existing product/idea from the West and markets it in the fastest-growing economy with protection from outside competitors. See also The9 and Ctrip.com." Fellow All-Star hlacheen, who is ranked in the top 0.05% of all CAPS players, added that Kongzhong is an "excellent pick fundamentally," though the potential for the Chinese government to do something unexpected is still a concern.

So are you with the rest of the CAPS army or against them? Either way, you can let them know simply by logging on to CAPS. Even if you couldn't give a hoot about Kongzhong or investing in China, CAPS offers nearly 3,700 other stocks to check out and share your thoughts on. So join today -- it's way more fun than playing games on your cell phone!

For more CAPS coverage:

• 7 Surprising 1-Star Stocks
• Tips from Wall Street's Best
• 5 Low-Priced, High-Star Stocks

Fool contributor Matt Koppenheffer pities the fool that ain't on CAPS. He does not own shares of any of the companies mentioned. Ctrip.com is a Motley Fool Hidden Gems pick. The Fool's disclosure policy is tougher than B.A. Baracus himself.