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. Theirs isn't the most popular way to go, but the rewards can be quite lucrative when things work out.
On Motley Fool CAPS, we have our own brand of leading analysts who've 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 were called.
Not every short sale goes as planned, so shorting is a risky position to take. 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
If the experts have it right, the economy is bottoming out -- finally -- and though it might not result in any sort of "V"-shaped recovery, things could be looking up from here. While I'm a bit skeptical of the assertion myself -- I see this as more of a reprieve from the grinding pessimism that will soon return -- a nascent recovery could show some consumer stocks ripe for the picking.
Chipotle Mexican Grill might be one of those that investors want to keep an eye on. After its first-quarter results were released, the restaurant-chain operator reaffirmed its belief that same-store sales would rise by the low single digits. Despite the consumers' reluctance to open their purse strings and part with any change jingling around in there, this is a hopeful indication that management's growth vision remains intact.
After all, according to the market researchers at NPD Group, most restaurant operators have reported a year and a half's worth of declining comps. McDonald's (NYSE: MCD), of course, has been an exception to this dour report, having been able to attract hungry consumers with its value meals.
Investors undoubtedly have seen the value proposition in Chipotle, too. Since its December low of around $36, the chain's stock has been gobbled up and more than doubled in value to $80 each. That development naturally has some analysts making a case that the Mexican restaurateur is positioned nicely for a fall. Unemployment is still rising, even if it has ameliorated somewhat. The capital markets remain in a funk, so those plans for opening 120 to 130 new stores this year might be a little grandiose. And the rising cost of doing business will pressure margins, since the company will be constrained in its efforts to pass along its increases.
CAPS member engidoc doesn't feel the same, however. Perhaps Chipotle is similar to a young Starbucks (Nasdaq: SBUX) that attracted an educated and loyal clientele, but he believes that the relatively healthy fare Chipotle offers will continue to win converts in this environment:
I think that they will do well in Europe. Although they deny plans to add breakfast, if the restaurant forced to do this shows this to be feasible, this would be an easy way to increase profits with minimal increase in overhead. Even during a recession I expect healthy fast casual to hold up, when money is tight this is a great place to go.
That's not to say Chipotle Mexican Grill is cheap. It trades at 30 times trailing earnings or 23 times estimated earnings in 2010. That might still seem rich, but with those same earnings expected to grow at a compounded rate of more than 21%, it seems a fair price to pay. With the potential for Chipotle to trade at the premium to its rivals that it usually does, the Mexican grill might have some further room to move north.
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 you're 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 to CAPS than you might think.
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