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 that one or more stocks would underperform the market.

Let's look at some of the recent calls these All-Star investors have made. And 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.

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
Although CAPS member manlac9 figured that betting on food even in a rising price environment was a safe choice, Great Atlantic & Pacific Tea -- better known to grocery shoppers as A&P -- was caught in a rout of supermarkets, suffering even more than Kroger (NYSE:KR) and Safeway (NYSE:SWY) did. It's not that people won't spend money to buy food; it's that they might spend less and tighten their belts a little more. Unfortunately for manlac9, his score on A&P has suffered along with the grocer's stock.

Another company that's been caught in a rout is oil refiner Valero, which is trading almost 75% below where it was at the beginning of the year. With oil's decline in price to less than $80 a barrel -- the first time in more than a year it's been that low -- there has been hope that refiners would benefit from the lower costs to get oil to refine. Yet top-rated CAPS All-Star leohaas blogged last Wednesday about a different view, in which Valero still has room to fall further:

Just look at what the 3-2-1 crack spread was early this morning: $2. This spread has been falling for the last 3 weeks (ever since it was clear that the hurricanes did not do significant damage to the Gulf Coast refineries). At this level, no refinery is making any money. After all, the crack spread represents the business' gross margin. Add to that, that spreads typically fall through Thanksgiving, and we can only conclude that the next months are going to be tough for the refiners. No doubt the stock prices will reflect that.

Although two-thirds of CAPS All-Stars think Zions Bancorp will underperform the market, staffier thinks they've misjudged it by buying into the total-collapse-of-the-financial-markets argument:

Another one the CAPS all-stars can't figure out...the insiders know the scoop, though. So does anyone else who hasn't bought into the "recession / totaly collapse of the financial industry" hype.

Yet the FDIC had asked it to bid on the assets of a failed Nevada bank back in September, a move the bank says wouldn't have happened had there been concerns about its financial stability. Although the bank has given back some of its recent gains, it still trades some 70% higher than it did during the summer.

There's no need to fear ...
When underdogs have their backs against the wall, that's when they can shine their brightest, but it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. So start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. While there, you can 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. There's more than you think.

In the coming weeks, Fool co-founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. The service, which just launched, will rely heavily on proprietary CAPS “community intelligence” data to establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.