5 Stocks That Swayed the Skeptics

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 Foolish CAPS skeptics:

Company

CAPS Rating(5 Max)

Skeptic

Player Rating

KHD Humboldt Wedag International (NYSE: KHD  )

*****

vonwao

99.83

Jos. A. Bank Clothiers (Nasdaq: JOSB  )

***

betmck

99.77

Philip Morris International (NYSE: PM  )

*****

mckx00

99.73

Flotek Industries (NYSE: FTK  )

*****

d1david

99.71

VASCO Data Security (Nasdaq: VDSI  )

*****

epc53

94.30

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 one for automatic buys. But they do offer an excellent starting place for your own research.

Skeptically skeptical
It's only been trading for a couple of days, but that hasn't stopped investors on CAPS from weighing in en masse on Philip Morris International. So far, 250 investors have cast their votes, and 99% see it as a winner. And there's only one CAPS All-Star -- of the more than 80 who have rung in with their opinion -- who sees it as underperforming the market.

Let's see, an industry that was weighed down by lawsuits, that can't advertise on TV, is heavily taxed, has a product that is linked to causing cancer, and whose users are segregated from the general population like lepers. You'd have to be crazy to back this stock, right? Only if you were investing in a U.S. company. Philip Morris, though, is the international side of the cigarette company. By spinning it off, Altria (NYSE: MO  ) is seeking to unlock the value found in a division that saw greater than 19% revenue growth last year.

Top-rated CAPS All-Star TMFDeej has laid out a compelling case that covers the tobacco stock's growth prospects, the international move, and the potential for China to juice returns. Here's an excerpt:

The possible launch of Philip Morris International's products in China serves as an embedded call option. ... China currently has approximately 350 million smokers, which is equivalent to the populations of Russia, Germany and Japan combined. It consumes nearly a third of the world's tobacco. ... In December of 2005, Philip Morris International reached agreement on a joint venture with China National Tobacco Import and Export Group Corporation that will allow it to produce and sell Marlboro brand cigarettes in China... Alas, nothing has actually been produced or sold under this agreement yet. ... If PMI ever does begin to sell its products there it has the potential to make a ton of money.

As fellow Foolish All-Star TMFOpie notes, the world has a bevy of "smoking havens" that account for much of the potential for growth.

Adult smoking internationally is still a growth business, and Philip Morris is the No. 1 brand around the globe. Yet it is really just starting to touch in China, India, Bangladesh and Thailand, smoking havens responsible for 40% of international smoking volume. ... As they get their [bearings] as a public company (although key managers from Altria are over there now) they should be able to grow earnings in the low double-digits, if not faster.

You don't have to smoke to see the smokin' opportunity it represents.

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.


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