Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest guys in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.
On Motley Fool CAPS, we also have members who find the chinks in a company's armor and correctly call its fall. Our "Underdogs" have earned 100 or more CAPS points by 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. Instead of studying more of their pessimistic picks, we'll focus on the stocks these top members expect will outperform the market. If these CAPS members have scored big by correctly predicting which stocks will fail, it may be worth our while to see which ones they think will succeed.
Not every short sale goes as planned, so shorting is a risky proposition. 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 as a launching pad for further research.
What's in the bowl?
It's been a while since Starbucks was the soul of the caffeinated crowd, yet coffee aficionados still flock to its stores. And that's key for its growth. As McDonald's (NYSE: MCD) tries to be more like Starbucks and Green Mountain Coffee Roasters (Nasdaq: GMCR) gives consumers the same coffeehouse-brewed buzz at home, the mighty mermaid has had to reposition itself, too.
Sometimes it has been successful; at other times, it resembles reheated day-old grounds. CEO Howard Schultz needs to serve up more of the former, because the company's glossy brand has always been one of the most important things separating Starbucks from the competition.
Despite protests from customers that Starbucks' prices are no different than what you'll find elsewhere, the company's pricey image is still served in venti-sized cups. We've heard the phrase "perception is reality," so the news that the chain is raising prices (even as it lowers them on some of its more popular beverages) adds to the illusion that Starbucks is out of touch with the times.
It also adds credence to the opinion of CAPS member cubanstockpicker, who says the move is yet another instance of forcing consumers "to try other choices." cubanstockpicker says that when "Even YUM Brands (is) getting in on the 'end of starbucks,' " we can expect the stock to underperform the market.
Building up?
If Toll Brothers CEO Robert Toll is correct, the housing market has hit bottom, and recovery is here. The latest earnings report would seem to back that up, because losses narrowed and the company beat analyst expectations.
However, Toll Brothers achieved that by cutting the prices of the homes it sold. The nearly 800 homes sold went for an average price of $582,500, down 5% from the previous quarter. That's still a tough mortgage for many to make these days, but that's the reason why CAPS All-Star RANDBACH thinks Toll will succeed: "Premier homebuilder with the reputation to capture the wealthy person's dollar."
If you've got money and will be buying a home, you're going to look at a Toll McMansion at some point. The homebuilder's shares have rebounded 36% from the depths they hit back in March. That's not nearly as much as rivals like Beazer Homes or Hovnanian (NYSE: HOV), which have more than doubled in value. But for a builder that epitomized the housing bubble's excesses, it's a remarkable turnaround.
Another All-Star, Gtrinvestor, also writes that the worst is behind the builders, so "there is certainly upside to where they are currently priced."
There's no need to fear ...
Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. 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.
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