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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 new breed of contrarian investor can be found at Motley Fool CAPS where these savvy Fools are willing to see both the up- and down-sides of a stock. While their often negative opinions peg them as "skeptics," their top CAPS ratings announce to the world they're right far more often than not. And when they find a stock that they think will outperform, perhaps we should take notice.

Here are some recent picks from our list of Foolish CAPS skeptics:





Emerson Electric (NYSE: EMR  )




Martek Biosciences (Nasdaq: MATK  )




The Andersons (Nasdaq: ANDE  )




Cal-Maine Foods (Nasdaq: CALM  )




Toro (NYSE: TTC  )




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 showing you automatic buys. What it does offer is an excellent starting place for your own research.

Skeptically dubious
In recent years the health benefits of eating fish have become widely recognized. In particular, the omega-3 essential fatty acids contain such healthful side effects that you can get your daily dose in tablet form (I take mine!). One vital element in fish oil is the tongue-twistingly named chemical docosahexaenoic acid, which has been thoughtfully nicknamed DHA.

There are many sources of DHA, including algae, and at least one study that DHA-fortified baby formula derived from algae helped preterm babies gain weight faster than with DHA from any other sources. That's where Martek Biosciences helps; it manufactures algae-based DHA which it infuses into baby formula.

According to Martek, it has license agreements with 28 infant formula manufacturers, accounting for about 70% of the worldwide wholesale market for infant formula -- as well as nearly the entire U.S. wholesale market -- for its DHA products.

The growing body of positive scientific evidence as well as the market's acceptance of Martek's formulas has led analysts to increase their estimates of the company's earnings potential. In turn, CAPS investors such as DaveOfDuke have given the stock a thumbs-up in terms of outperforming the market:

recently posted a solid fiscal first quarter and saw its share price gain upward momentum following the release of the results. Revenues, which increased by 18% year-over-year, were a record $82.9 million. Analysts lifted their earnings forecasts in response the strong quarter.

Others, like CAPS player foremost25, recognize that DHA is being used in more food products regularly, while hendrikvanlaar noted last September that Martek has been steadily gathering new customers, which will lead to long-term growth:

Revenues from new clients/new products contracted in 2007 will boost gross margin. Better capacity utilization. Accounting, DSM, and inventory problems are in the past now.

Long term - if they could build their case that DHA keeps you from developing Alzheimer's disease that would be really something!

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 think. What's your forecast? Drop by CAPS and tell us which stocks are your favorite contrarian picks. 

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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Related Tickers

2/25/2011 4:00 PM
MATK.DL $31.49 Down +0.00 +0.00%
Martek Biosciences… CAPS Rating: ****
ANDE $36.06 Up +0.67 +1.89%
The Andersons, Inc… CAPS Rating: ***
CALM $45.82 Up +0.40 +0.88%
Cal-Maine Foods, I… CAPS Rating: ***
EMR $51.17 Up +0.48 +0.95%
Emerson Electric CAPS Rating: *****
TTC $87.60 Up +1.39 +1.61%
The Toro Company CAPS Rating: ****