Money Matters - Simplified

Analysts Are Completely Wrong About These Stocks


These are some of the CAPS community's most-favored companies. So why does the professional analyst community look down on them? Who's got it right? The professional class of analysts, sitting in their paneled offices, smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share. We've got an idea on who we think will come out ahead, how about you?



Stock

CAPS Rating
(out of 5)

Wall Street Bullish 
Sentiment

Alon USA Energy (NYSE: ALJ) **** 25%
China Nepstar Chain Drugstore (NYSE: NPD) **** 25%
Encore Wire (Nasdaq: WIRE) **** 50%

Source: Motley Fool CAPS.

Now as much as we love our CAPS community, don't invest in these companies just because they've garnered top honors. And don't sell just because Wall Street looks down on them either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.

A ray of hope
Be greedy when others are fearful. That simple Warren Buffett maxim could be used to make the case for investing in oil and gas refiners like Alon USA Energy, Valero Energy (NYSE:VLO), or Tesoro. Although those latter two have recovered sharply this year (rising 45% and 70%, respectively, from their August lows, while Alon is only 5% higher) all of them, and pretty much the rest of the refining industry, is well below all-time highs hit back in 2007.

CAPS All-Star saunafool lists some of the gloomy predictions:

Now, there is nothing but fear. The economy will never recover. Electric cars will replace gasoline. Fuel consumption will forever shrink in America. Huge Indian and Chinese oil refineries will begin exporting to the U.S. Ethanol production will quadruple. Cap and trade legislation will kill the oil business. And so on.

For far-thinking investors, two trends in particular will accrue to the industry's favor and show the fears to be misplaced: continued population growth and refineries going idle, both here and abroad. Western Refining (NYSE: WNR), Sunoco, and Valero are among those that have idled plants, while others like Alon are picking up capacity at a discount. "Eventually," says saunafool, "refining spreads will return and these companies will make huge gains."

You can refine your thoughts on the Alon USA Energy CAPS page and add whether this could be an industry inflection point.

Take two aspirin here
It can't be a good sign that the CFO of China Nepstar Drugstore abruptly resigned on Nov. 30 for "personal reasons." Like Walgreen (NYSE: WAG) here in the U.S., Nepstar is increasingly acting like a grocery store, with a growing percentage of convenience and consumable items. That's helped boost sales, but has served to cut margins, and with the Chinese government imposing price controls on prescription and OTC drugs and raising the minimum wage, rising costs have hurt performance.

Nepstar does offer a dividend, which is attracting investors like CAPS member KABENAC, who wonders where else in Chinese pharmaceutical stocks you'd be able to find a similar one. But while it is currently yielding more than 7%, investors should use caution when chasing yield.

Only you can decide if China Nepstar is right for your portfolio, so put it in your watchlist and have all the Foolish news and analysis aggregated for you in a single place.

Construct an argument for growth
Someone's betting really big on copper, possibly owning as much as 90% of the copper sitting in London Metal Exchange warehouses, which would be equal to half of the world's exchange-registered inventories. JPMorgan Chase is known to have a large position, though Reuters says it actually reduced its holdings, so the mystery buyer remains just that, a mystery.

That hoarding, though, has caused copper prices to soar to record levels, currently around $9,300 a tonne, and miners such as Freeport-McMoRan (NYSE: FCX), the largest copper miner in the U.S., can't be complaining. Nor would Encore Wire, which saw sales rise 44% in the latest quarter on the strength of higher copper prices.

On CAPS, 92% of the members who have rated Encore Wire mark it to outperform the broad market averages. You can bundle your thoughts and let us know your views on the Encore Wire CAPS page.

What's wrong with that?
It pays to start your own 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.

Sign up today for the completely free service, and tell us which side of the street will be the ultimate winner.

© 2010 UCLICK L.L.C.