It pays to be skeptical when you invest. In addition to doubting what the analysts tell you, you often have to discount what the companies tell you, too. On Wall Street, going against the grain can reap huge rewards. Like baseball's greatest place hitter, "Wee Willie" Keeler, great contrarian investors such as Benjamin Graham, Warren Buffett, and John Neff "hit 'em where they ain't."
Today's new breed of contrarian investor can be found at Motley Fool CAPS, where these savvy Fools are willing to see both the upside and downside of a stock. While their often negative opinions peg them as "skeptics," their top CAPS ratings mean they're right far more often than not. And when they find a stock they actually believe will outperform, perhaps we should take notice.
Here are some recent picks from our list of Foolish CAPS skeptics:
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Company |
Skeptic |
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|---|---|---|---|
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Yahoo! |
** |
100.00 |
|
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Pfizer |
*** |
100.00 |
|
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China Fire & Security |
***** |
99.99 |
|
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Taser |
*** |
99.99 |
|
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Nam Tai Electronics (NYSE: NTE |
***** |
99.98 |
Just as a list of their worst stocks would not be a list of stocks to short, this list of the skeptics' favorites isn't automatic buys. But they do offer an excellent starting place for your own future research.
Skeptically skeptical
There are certainly enough reasons to be skeptical about Pfizer. Trading at prices its shares haven't seen in a decade, analysts also see the pharmaceutical giant facing deterioration in its base drug business, and some question whether its hefty dividend is safe. However, the company contends that not only will its payout not be cut, but it's also expected to increase 10% this year.
So what's there to like about this stock that would have even a skeptic voting for it? While it will be difficult for the company to make up for both Lipitor and Viagra going off-patent as they soon will, but its acquisition of Encysive Pharmaceuticals
Moreover, it's not taking the fight over its anti-smoking pill Chantix lightly. Rather than rolling over, it's begun an offensive to point out that the pill remains a safe and effective treatment despite its risks.
Investors believe management's contention the dividend is safe for now -- the company says it would take "significant events" to jeopardize it -- and with the stock at some of its lowest levels in recent memory, it represents an excellent opportunity to buy.
Top-rated CAPS All-Star sandvig says patience is a necessity, but that Pfizer's extraordinary ability to generate cash makes it a worthwhile investment.
The current dividend yield is over 5%. They generate all kinds of cash. If the economy heads for a recession, people will probably still buy their medicine. Their drugs treat a very broad range of maladies, which provides an additional cushion of safety.
On the downside, I hear concerns that generics will cut into their sales and that their "pipeline" is not as strong as other companies.
On balance, I am swayed by their ability to generate cash. It gives them lots of competitive options.
Seeing past the obvious
Skeptics know that just beyond the storm clouds lies a shimmering morning. Conversely, the sun can't shine forever, whatever the crowds may think. What's your forecast? Drop by CAPS and tell us which stocks are your favorite contrarian picks.
