Once upon a time, you could open a catalog and buy a home from the forerunner of Sears Holdings (Nasdaq: SHLD). These days, it seems there's not much of a foundation propping up the discount retailer.

In the dog-eat-dog world of discount retailing, Sears' bigger rivals Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) are eating its lunch. The Motley Fool Inside Value recommendation hasn't posted a single quarter of rising comparable sales since it emerged from bankruptcy over two years ago.

The latest quarterly results showed that the "Lampert magic" -- the ability of its Warren Buffett-wannabe chairman Eddie Lampert -- still hasn't kicked in. Sales are down, profits are eroding, the company's been bleeding cash, the CEO quit, and it's been forced to reorganize its operations. What a great time to invest!

Peeking over the shoulder
Piggybacking on the picks of great investors and money managers can lead to big rewards -- especially when the stocks in question are beaten down. If Buffett's buying railroads, perhaps you should look there, too. Does Bill Miller think financial stocks are beaten down? Maybe investigating more closely will help improve your results.

In Motley Fool CAPS, our top-rated All-Star players represent the best 20% of more than 83,000 professional and novice investors. I'm looking for those who've chosen one- and two-star stocks to outperform the market. The majority of CAPS investors may consider these stocks losers, but if our ace contrarians think otherwise, these picks might be worth a look.

Sears popped up there, and the other stocks in the list below have also gotten the nod from the cream of our CAPS investors:


CAPS Rating

1-Year Return


Player Rating

Valence Technology (Nasdaq: VLNC)





Big Lots (NYSE: BIG)





Sears Holdings





Lexmark (NYSE: LXK)





BankUnited Financial (Nasdaq: BKUNA)





Typically, there's a low-rated stock that has also enjoyed a large one-year run-up in its stock price, leaving me leery. Sure, stocks can continue to run, but these picks' high valuations -- and low ratings -- leave me cold. This week it's green battery-maker Valence Technology that has enjoyed significant share appreciation over the past year, undoubtedly basking in the glow of the alternative-energy glare such stocks give off.

Discounting the discounters
CAPS investors have looked at Sears and, like Lampert, they see the value in the real estate the company owns. The chairman has committed to making Sears into a viable retail operation again, and Harry0925 notes that there are many brands that could fetch the company a decent penny, making the parts more valuable than the whole. Focusing just on comps will just create pricing opportunities for investors.

Enormous amount of real estate and brand assets. The real estate alone is worth more than the current market cap. Add on its Sears Canada stake, NWC, and company-owned brands and this one is a no-brainer simply on a sum-of-the-parts basis.

The kicker is that one of the world's greatest capital allocators, Eddie Lampert, is at the helm. I hope some dope analyst downgrades SHLD because they miss SSS one month, I will be all over it.

However, top-rated CAPS All-Star AnomaLee doesn't see Sears as becoming the next Berkshire Hathaway. With a recession looming, even Lampert's plans to create a rejuvenated retailer seem destined for underperformance.

Those of you who think that Eddie Lampert is trying to convert Sears Holding into the next Berkshire Hathaway are sadly mistaken. He is strictly tied & focused on driving this huge lagging retail conglomerate, and I believe that he has done a remarkable job turning around K-Mart and liquidating the glut, but this is the story of a champion jockey riding a pony. I can't see much room to the upside here for a while when consumers aren't going to be increasing their spending by much this year 2008 and possibly longer while credit & the economy remains shaky. So many retailers are going to suffer because we are domestically trending out of ridiculous over-spending and we are already watching the slow crunch of many other big names.

Finding value under rocks
So there you have it -- five low-rated laggards that have merited big endorsements from some of the best and brightest investors in the CAPS community, although there are always some who are not so sure. If you want to add your two cents on these or any other companies, sign up to join Motley Fool CAPS absolutely free.

Sears and Wal-Mart are Inside Value recommendations. The 30-day, free trial subscription is a markdown you won't want to miss.

Fool contributor Rich Duprey does not have a financial position in any stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.