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 125,000-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. Data suggests that CAPS' highest-rated stocks performed best while the lowest-rated did worst, 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.

Sources: Motley Fool CAPS; Yahoo! Finance.

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.

Sniffing around
It's often said that the most vocal critics of smoking are ex-smokers, while former drinkers complain loudest about drinking. That's why the noises made by Barry Minkow's Fraud Discovery Institute are generating so many listeners. Minkow's an ex-con who served prison time for masterminding a $300 million stock fraud, but since his release from jail he's devoted his time to uncovering corporate fraud.

Minkow recently identified Microsemi's CEO as someone who lied about his qualifications on his resume. The CEO denies this. Whereas Broadcom (NASDAQ:BRCM) fired a senior VP after Minkow highlighted similar shenanigans, Microsemi has stood behind the executive even after the Fraud Discovery Institute produced records that it says disprove the CEO's claims.

Certainly puffing up a resume isn't the biggest crime, but it does instill a sense of doubt in some investors about what else may be fudged. CAPS member semibeater is one who remains unconcerned about the alleged puffery at Microsemi, as the allegations don't center on the company's operations:

Stock has been unfairly hammered by inconsistancies in CEO resume not company performance. Gov't attacking them because they are a small cap and they don't expect a fight. Wrong!

Short-circuiting
Integrated circuit manufacturer National Semiconductor has been in the doldrums due to the recession, with third-quarter revenue missing analyst expectations and forward guidance suggesting a further 30% drop in revenues.

Top-rated CAPS All-Star srk85 thinks National Semi's ranking in the industry is particularly low, and with earnings in free fall, there's little reason to expect the stock to outperform the market. "Very poor valuation compared to industry. Earnings are declining precipitously."

Shine your starlight
So are these stocks driving ahead or ready to crash? 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 shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?

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