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."

A 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. Although 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 that they believe will outperform, perhaps we should take notice.

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

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 a group of automatic buys. But they do offer an excellent starting place for your own research.

Skeptically skeptical
Considering that Solarfun Power had some people seeing double when it beat analyst expectations this quarter, investors might have been surprised by the market's harsh reaction when a Goldman Sachs analyst said "sell" for the solar cell and module maker. Citing expected pressure on earnings as solar-wafer prices moderate, the analyst believed that Solarfun's premium valuation was unwarranted. On a trailing basis, the solar stock's price does seem high, but at just 24 times forward earnings, it's right in line with others in its industry, such as Suntech Power (NYSE:STP), and well below that of SunPower (NASDAQ:SPWR). Investors perhaps ought to thank the analyst for bringing the stock back.

The polysilicon supply issues that have plagued many of the solar companies as demand outraced what was available seem to be abating, and Solarfun signed long-term contracts to ensure that it has the raw materials necessary to make its modules. It expects full-year shipments in the 160- to 180-megawatt range, above what was previously anticipated. Solarfun could still be hot.

Earlier this month, CAPS All-Star investor wildeagain penned a pitch that could have been written following the action after the analyst downgrade, but for the difference in stock price:

I think this is oversold at this level. Strong forward p/e for a growth stock. I also think the oil shortage story is real and long term. Even if there is short term pullback on the price of oil, we are not getting a new earth anytime soon to use up, so this trend isn't going the direction of having too much oil. These solar stocks are sexy some days and not so sexy other days, but these companies will trade much differently soon. So at 13 dollars when it was 40 and all it has done is grow its business, this one doesn't scare me too much to the downside.

The run-up in price before the earnings announcement underscored the anticipation investors had relative to what was produced. Now with the dust settled somewhat and expectations reset, will we see another surge forward, or has Solarfun lost the excitement? Only time will tell.

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.