Short-sellers and hedge funds, though sometimes shadowy, are sometimes 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 one or more stocks would underperform the market.
Let's look at some of the recent calls these All-Star investors have made. Just as hedge fund operators don't always go short, we'll look at recent Underdog picks whether they've gone short or long.
Not every short sale goes as planned, making betting against a given company 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 -- just a launching pad for further research.
Underdogs still wag their tails
While not on the same torrid pace as copper itself, miner Freeport-McMoRan has been enjoying its own run-up in price. Copper hit six-month highs recently, having risen more than 40% since March. Freeport is up 22% and 19%, respectively, over those same time frames.
Thus, Freeport might not have as far to fall if weak retail sales and a still-shaky economy force the metal to relinquish much of its recent gain. Compared to Southern Copper (NYSE: PCU), which has nearly doubled in price over the past six months, Freeport has been on a slower, steadier course. (Southern Copper may have two strikes against it, actually, if the economy continues to weaken.)
Amid the global economic slowdown, governments have been doing their level best to spend their way out of the recession. With fears of inflation taking a back seat to other seemingly more pressing concerns, potential abounds for the commodities market to reignite. Yet a wave of grim news buffeting the markets might prevent another round of surging stock prices. Machine orders are down 30% in Japan, while German plant and machinery orders were halved in February. Joy Global (Nasdaq: JOYG), perhaps the bellwether indicator for commodity investors, suggests a tough climate for the immediate future.
There may be something to say for investors gunshy about staking a position in Freeport-McMoRan at these elevated levels. CAPS member bobbyabull thinks the burned hand learns best, cautioning against an investment here:
Horrible stock. It LOOKED cheap to me last year any time it dipped below 80, as it was supposedly earning $10 a share, so I bought some at $65-only to average into it all the way down to $17!! When they canceled their dividend (which down in the teens was at 8%) I gave up and sold. I haven't looked back since, but as I follow the market daily I can't help but hear about [Freeport-McMoRan] from time to time. This company trades exclusively along with the price of copper. You might as well just buy a big block of copper and place it on the floor in your office if you want Freeport in your portfolio because it's the same exact thing. Right now, according to Yahoo Finance, FCX is trading at 54X 2009 earnings with a PEG of 8.75 and no dividend! I understand the China angle and the "they also mine gold" storyline, but seriously-those numbers are just ridiculous. Copper can't run up forever (bubbles ALWAYS burst eventually.) We're still in a global recession and a bad housing market. Corporate CAPEX is down. Infrastructure projects are not all that numerous and the dollar (in which copper is priced) isn't all that weak.
There's no need to fear ...
Underdogs shine brightest with their backs against the wall. Still, you shouldn't base your own buy and sell decisions on a handful of All-Star pitches. Start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. 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. In short, our online investing community has plenty of bite to match its bark.
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