These 5 Underdogs Are No Dogs

Short-sellers and hedge funds, though sometimes shadowy, are often seen as the smartest guys in the room. They did their homework and will bet their capital against the crowd. It's not the most popular way to go, but the rewards can be quite lucrative.

On Motley Fool CAPS, we've got our own brand of leading analysts who found the chinks in a company's armor and correctly called its fall. "Underdogs" are investors who earned 100 or more CAPS points correctly predicting a stock would underperform the market.

Let's look at some of the recent calls these All-Star investors have made. Yet, just as hedge fund operators don't always go short, we're going to look at recent Underdog picks no matter which way they've called them.

Underdog

CAPS Member Rating

Company

CAPS Stock Rating
(out of 5 max)

Call

EverydayInvestor

100.00

MVC Capital (NYSE: MVC  )

*****

Outperform

chk999

100.00

National City (NYSE: NCC  )

*

Underperform

dwot

99.99

MBIA (NYSE: MBI  )

*

Underperform

nicvo

99.99

Overstock.com (Nasdaq: OSTK  )

*

Underperform

vanamonde

99.99

MEMC Electronic Materials (NYSE: WFR  )

****

Outperform

Not every short sale goes as planned, so it's a risky position to hold. 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, but rather as the launching pad for further research.

Underdogs still wag their tails
The semiconductor business is starting to feel the strain of the economy weighing on it, and the Philadelphia Semiconductor Index dropped more than 4% last week. Yet for some companies like MEMC Electronics, the solar industry is helping it to prop up its guidance with deals like those it has in place with LDK Solar (NYSE: LDK  ) . That's why top-rated CAPS All-Star bsharvy sees it as a cheap way to play the solar field.

Seeks like a cheap way to get some solar energy [exposure]--or will I just get sunburned? I dunno what percentage of revenue/income is solar vs. computer gunk. I'm just comparing some numbers... [MEMC Electronics] looks cheap, but like a wise old man who lived a long time ago once said: Wisdom is knowing what you don't know.

Even though they remain in difficult straits, bond insurers MBIA and Ambac Financial (NYSE: ABK  ) seem to have pulled themselves back from the brink and were recently able to reinsure a $184 billion portfolio of muni-bonds insured by Financial Guaranty Insurance. CAPS member DeerHunter73 pointed out last month that MBIA would benefit from Ambac being removed from negative credit watch.

Third Avenue upped its stake in MBIA to 23.6 million shares, up from 10.6 million shares reported on April 30.....they did the same with [Ambac]. Ive been saying for over a month [Ambac] and [MBIA] are do to go up and go up nicely. This stock is going to have a huge rally between today and next week. get them while there cheap. [Ambac] was removed from neg watch also which will make both [MBIA] and [Ambac] go up even more.

Is it a sign of desperation or a smart financial move that National City is offering to pay its customers $200 if they'll close down their home equity lines of credit? With the company being one of those hurt most by the mortgage meltdown, erring on the side of prudence to keep its clients from overextending themselves -- and running the risk of more of its mortgages defaulting -- seems to suggest it's a smart move. Particularly with Standard & Poor's cutting its credit rating, the move seems essential, but National City raised $7 billion earlier this year, and its important Tier 1 rating is higher than any of its competitors, according to the company. With smaller banks going under, CAPS member montanadave32 thinks it might even be able to grab market share.

The $7 billion cash infusion, solid retail side growth, plus gaining some market share from smaller banks that will go under, National City should outrun any other regional bank over the next few years.

There's no need to fear...
When underdogs have their backs against the wall, that's when they can shine their brightest, but it pays to start your research on these stocks on Motley Fool CAPS. 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. Then don your superhero cape and head on over to Motley Fool CAPS, where your opinion can still save the day.

MVC Capital is a Motley Fool Hidden Gems recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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