5 unloved stocks that could surprise you

By The Motley Fool

Ah, skepticism, how I love thee.

We rebel investors believe the multibaggers in the making, while not often cheap by the numbers, are always misunderstood. As such, they face extraordinary skepticism, which, in turn, makes them excellent value stocks.

More are out there. Each week, we hunt them down. Really, it's worth your time. One home-run stock can make all the difference to your portfolio.

• Contest: Beat the market, win prizes

Just ask Motley Fool co-founder David Gardner, who bought Amazon.com (AMZN, news, msgs)at a split-adjusted price of $3.24 a share in 1997. He's up more than 2,700% since.

That purchase helped him to overcome stinging losses from Sirius Satellite Radio (SIRI, news, msgs), 3Dfx (TDFXQ, news, msgs) and others to put up average annual returns of better than 20% over the past nine years as leader of the real-money Rule Breaker portfolio.

Today, Gardner and his team still seek misunderstood growers. You can, too, with the help of our completely free-of-charge CAPS investor-intelligence database, which contains information on more than 5,300 stocks.

CAPS applies user input to rate stocks from between one star (low) to five stars (high). Using CAPS, we searched for one- and two-star stocks that have at least 5% of their available shares sold short but are expected to grow their earnings by 15% or more over each of the next five years.

With that preamble behind us, here are five unloved growth stocks:

Out-of-favor growth stocks

Company	Industry	CAPS rating	Short interest (as of 12/10/07)	5-year growth estimate
First Solar	Solar cells	**	8.50%	56%
Lazard	Asset management	**	7.80%	15%
Crocs	Footwear	**	18.80%	26%
Applied Micro Circuits	Semiconductors	**	7.30%	20%
99 Cents Only Stores	Discount retailer	**	24.10%	19%

Bear in mind that this isn't a list of recommendations. Instead, these stocks are offered as candidates for further research.

Sun-drenched stocks such as Evergreen Solar and Suntech Power Holdings (STP, news, msgs) have captured attention before, and few are better than First Solar. After burning through $14 million in the first nine months of 2006, the Phoenix company produced $106 million in cash from operations from January to September this year. Talk about a turnaround.

The trouble with First Solar is that investors already know the story. It's been an eight-bagger over the past 52 weeks, easily besting both the Standard & Poor's 500 Index ($INX) and Suntech.

I'll buy expensive stocks when the situation calls for it, but I prefer the misunderstood multibaggers in the making. Stocks like that are best bought when skepticism runs high. Now could be such a time for Crocs (CROX, news, msgs).

Over the summer I said Crocs was looking a lot like Deckers Outdoor (DECK, news, msgs) and that investors should expect a 50% haircut based on valuation and inflated expectations. The razor finally appeared in late October.

And I'm liking the slimmer, trimmer Crocs, which now trades for 20 times next year's earnings. What's worrisome to others is the inventory story. Crocs saw inventory rise 297% in its latest quarter, easily outpacing sales growth.

I'm less concerned about this, because we knew the YOU by Crocs collection of women's shoes was in development. An inventory buildup in advance of the YOU by Crocs launch was inevitable, but it's something to keep an eye on.

Finally, Crocs' management, particularly CEO Ron Snyder, appears to be more enthusiastic about the company today than in years past. Snyder acquired 38,935 shares of company stock on Nov. 5 via options, but in a twist, he's holding rather than selling those shares.

That's nowhere near as bullish as seeing Snyder or any executive buy outright, but it does signal a shift in the parachute-wielding management team at Crocs' Colorado headquarters.

So Crocs is on my watch list. But what would you do? Would you buy the stock at today's price? Let us know by signing up for CAPS today. Participation is 100% free.

This article was reported and written by Tim Beyers for The Motley Fool.