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 115,000-plus investors, 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 have 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.

The sun's always shining somewhere
Sun Microsystems' recently released earnings report shows that although it may be facing partly cloudy skies in regard to enterprise spending -- which accounts for 40% of revenue -- brighter days are ahead in emerging markets (though they have much smaller contributions to total sales). While the immediate prospects for a fast recovery are slim, the additional $1 billion share buyback Sun authorized -- on top of the almost half a billion it spent in the current quarter -- suggests that management thinks there's still value to be found in its stock.

The global-marketplace potential of Sun is what attracts CAPS member Brian7992, who finds the ubiquity of Windows making its Java platform essential: "Gotta Love this company, if you run windows they are a must, expansion of Java Development tools as well as sound business practice make this a company set to make a big move into global market in the necxt few years."

Brownout
Like its delivery rival FedEx (NYSE:FDX), which appeared in this column a few weeks ago, United Parcel Service has been feeling the pressure of increased transportation costs. Earnings fell and margins compressed as oil prices rose and delivery volumes fell. Although it's a gloomy portent of the health of business and the economy, the Motley Fool Income Investor recommendation is engaging in initiatives to supplement its own business -- like carrying packages for another competitor, DHL, which could add as much as $1 billion in revenue.

CAPS member quickymart thinks the U-turn oil prices have made in recent weeks will help UPS report an earnings surprise next quarter, because there's a lag time in the fuel surcharges it imposes:

UPS is currently valued at its lowest earnings multiple since it went public. Recent earnings have disappointed because fuel prices have risen and they have a lag in their fuel surcharges, so thus, they didn't recoup the cost. Now, fuel prices have declined, at least for the short term. That works in UPS' FAVOR, which means a positive earnings surprise next quarter.

A strong cup of joe
You can't quite compare the operations of lackluster performers Starbucks (NASDAQ:SBUX) or Peet's to that of Green Mountain Coffee Roasters, because the latter doesn't have retail establishments. But you can still marvel at the strength the Vermont-based specialty coffee maker was able to show thanks to its Keurig single-cup coffee machines. Getting a quality brew at home might be just the thing for inflationary times.

Top-rated All-Star CAPS member EnochRoot finds lots of opportunity still in the coffee machines, though the valuation may be pricey:

Longer term, to justify the 41x P/E multiple currently afforded the stock, [Green Mountain] needs to achieve greater than 25% EPS growth for at least the next 5 years. While consensus expects 50% EPS growth for 2009, the real challenge is getting comfortable that 1) mass adoption of single-serve coffee at home and in the office place will become a reality , and 2) Keurig's market share dominance will expand with the catagory beyond the pockets of adoption in the Northeast and Mid-Atlantic currently. I believe they will, and recognize that there is at least 60% downside here if it in fact doesn't. However, the rewards available to an owner of a concept that does in fact reach mass adoption are substantial, even from a seemingly pricey starting point.

Shine your starlight
So are these stocks driving ahead or ready to crash? It pays to start your research 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?