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 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 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 shouldn't be considered automatic buys. But they do offer an excellent starting place for your own research of extreme buying opportunities.
The ads have it
When it comes to mindshare, Google certainly has plenty to spare. While it's probably most associated with its search engine, its tech-savvy employees have developed tons of cool new applications. Right now, it's planning to challenge Microsoft (Nasdaq: MSFT ) for the web browser market, and it's launching an assault on the mobile-operating-systems segment with its Android offering. Yet as nifty as all those products are, Google's search engine still pays the bills.
CAPS member octithorp doesn't foresee ad revenue growing in the current economic climate: "As the economy continues to slide into a recession, or whatever the Fed decides to call it, ad revenues will take the next hit. Google makes most of its revenue on ads."
Mechel shows its mettle
At one point, it seemed the Russian Prime Minister Vladimir Putin would singlehandedly wreck that country's stock market. Not only was he seen as the iron fist behind Russia's assault on Georgia, raising global tensions, but his saber-rattling against publicly owned Russian companies also jolted the market, sending shares tumbling. In July, Putin remarked that he would send a doctor and a prosecutor to the home of Mechel's owner when the latter failed to show for a meeting, scaring investors with nightmares of Putin's dismantling of Yukos.
President Medvedev has seemingly ratcheted down the rhetoric, even helping the steelmaker open a new plant. Although tensions have eased, Mechel's shares remain at half the level they held at the start of the summer. All-Star CAPS member dbillett1 thinks Mechel will return to its "former glory," because demand for its coking coal remains strong:
In the end, [Mechel] was forced to reduce its price for Coking coal by 15% and pay 5% of coking coal profits for the rest of the year as a fine. [Mechel] has also been asked to sign long term contracts with steel producers to provide coking coal at a similar rate as the government now sets its sights on the steel industry for similar pricing reductions. Coking coal makes up approx. 8% of the companies revenues.
So looking forward it seems that the worst is over [Mechel] and it should begin a steady increase back to its former glory. Buying now could lead to gains in the 20 to 30 % range by early next year, but realize this does not come with risk as the Russia-Georgia issue could still cause commodity devaluation from Russian producers.
Tough times in McDonaldland
As rival Burger King (NYSE: BKC ) rolls out ads showing the King putting a dollar back in our pockets, McDonald's finds its plans to debut gourmet coffee crimped by the credit crunch. Franchisees are allegedly short on funds to upgrade their restaurants, and McDonald's is having trouble gaining access to new credit. That doesn't concern CAPS member amassafortune, who thinks that the company's overall strategy will pull customers back:
This strategy adds volume to existing stores with only a small increase in capital needs during a period of tightened credit. Part brilliant strategy and part luck for the timing, Micky-D may have found a way into the Starbucks niche that Starbucks may not easily counter. Even once we can tap our home equity again for two-buck muck once or twice per day, we may have developed a permanent fondness for tiled walls and bright lighting.
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. It pays to start your own 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. What's your forecast? Drop by CAPS and tell us which stocks are your favorite contrarian picks.