Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest ones in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.
On Motley Fool CAPS, we also have members who find the chinks in a company's armor and correctly call its fall. Our "Underdogs" have earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market.
Let's look at some of the recent calls these All-Star investors have made. Instead of studying more of their pessimistic picks, we'll focus on the stocks these top members expect will outperform the market. If these CAPS investors have scored big by correctly predicting which stocks will fail, it may be worth our while to see which other ones they think will succeed.
Not every short sale goes as planned, making shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. So don't use this as a list of stocks to sell or buy -- just the launching pad for further research.
Underdogs still wag their tails
Many investors probably have a line in the sand they won't cross when it comes to buying stocks. Some would oppose investing in ExxonMobil because they're opposed to oil drilling. Las Vegas Sands (NYSE: LVS ) would no doubt come up craps on a list of socially responsible businesses. Heck, you could even argue that CarMax furthers our dependence on transportation that enslaves us to fossil fuels (though I'm sure it'll be selling used hybrids soon enough).
I don't have any such hang-ups. If I could invest in the rogue's gallery of vices covered in Walter Block's Defending the Undefendable, I would. But few companies seem to generate the animosity aimed at cigarette maker Altria, a lightning rod for vitriol and lawsuits.
That ought to be an argument weighing against it being a good investment, but the company's shares have appreciated more than 40% over the past year, all the while paying a hefty dividend. Altria investors actually got the best of both worlds.
Even as they wax prosaic about the opportunities that an investment in Altria represents, CAPS investors like BarneyBrown are mindful of cigarettes' side effects.
Although I don't smoke, I've visited with too many smokers who tell me they wouldn't give up their cigs, even if they doubled in price. [Altria] not only owns its market, [it] owns the bodies and souls of its customers who will keep on smoking no matter what the economy does.
However, you have to wonder what impact ObamaCare would have on Altria's stock. Congress has already piled onerous taxes on cigarettes, with the average state and local levies adding up to more than $2.00 a pack. It's hard to imagine the politicians would allow Altria or Reynolds American (NYSE: RAI ) to escape unscathed if the effects of smoking add costs to nationwide health care. After all, ObamaCare is supposed to cut costs while it adds millions of new individuals to the rolls.
The Centers for Disease Control estimates smoking results in 443,000 premature deaths annually and costs $193 billion in health-care expenses and lost work time. Numbers like that are sure to be budget-busters. That could hurt Altria's results in the future.
There's no need to fear ...
Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. Start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. 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.
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