These 5 Underdogs Are No Dogs

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 -- a strategy that can be as lucrative as it is contrarian.

On Motley Fool CAPS, we also have investors 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 investors have scored big by correctly predicting which stocks will fail, it may be worth our while to see which others they think will succeed.

Underdog

Member Rating

Company

CAPS Rating
(out of 5)

bullishbabo

99.99

Coventry Health Care (NYSE: CVH  )

*****

caidencollett07

99.45

KMG Chemicals (Nasdaq: KMGB  )

***

SorryCharlie65

99.20

Williams Companies (NYSE: WMB  )

****

tad40

98.90

Amedisys (Nasdaq: AMED  )

**

biolasteve

94.95

Infinera (Nasdaq: INFN  )

*****

Not every short sale goes as planned, making shorting 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 the launching pad for further research.

Underdogs still wag their tails
The combination of a supply glut, demand reduced by the recession, and an overall increase in production serves to keep natural gas prices under pressure. Although pricing has recovered by almost 60% in the past month, natural gas remains well below its crude equivalent.

That hasn't kept companies like Chesapeake Energy (NYSE: CHK  ) from boosting production. It recently announced that it had achieved record production levels in the Marcellus, Barnett, Fayetteville, and Haynesville shale plays. Williams Companies is also expanding, planning for new pipelines to feed the eastern part of the country.

Last month, Williams Companies received permission from the Federal Energy Regulatory Commission to extend its Transco pipeline to reach Southeastern markets, allowing it to expand capacity. The month before, it agreed to form a joint venture with Dominion Resources to build a new pipeline that will transport up to 1 billion cubic feet per day of natural gas produced in the Rockies and the Marcellus basins to the East and the mid-Atlantic.

It's part of a national trend in building out the infrastructure to meet all the new gas finds, and the Department of Energy believes the fundamental conditions for continuing to build out the pipeline system remain intact. The Energy Information Administration projects that natural gas production from unconventional resources -- tight gas, coal-bed methane, and shale formations -- will increase by as much as 35% by 2030, with the shale plays becoming the largest component.

What do some investors think about the prospects for gas transport? More than 96% of the CAPS members rating Williams Companies have indicated it will outperform the market, believing, as chk2595 does, that the pipeline company has "the gas business from production, transporting and selling gas figured" and does so smartly.

A chemical attraction
The chemicals industry has also suffered a lot because of the recession. A merger deal between Huntsman (NYSE: HUN  ) and Hexion, for example, collapsed because private equity firm Apollo Management didn't think it could make a profit from the combined companies. If Huntsman hadn't received huge cash infusions last quarter from legal settlements related to the breakup, it would have posted rather large losses, because chemical sales and volumes declined dramatically.

Yet that appears to have been the bottom, according to the CEO of Huntsman, and the industry looks like it's on the way back. Now Huntsman's on the prowl for acquisitions, and KMG Chemicals was able to report higher profits for its latest quarter, with all of its business segments showing improvement. With the economy gradually on the mend, KMG Chemicals management expects the first quarter to be just as robust.

That view prevails on CAPS, too, where 93% of the members who have rated the chemicals concern say it will outperform the market. godwinslaw says customers who have been delaying sales will start purchasing again.

Previous quarter financials disappointed due to [KMG Chemicals] sales being postponed by buyers. The missed sales will be made up in the current and following quarter. This company will also benefit from the declining price of oil.

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.

Infinera is a Motley Fool Rule Breakers pick, Coventry Health Care is a Stock Advisor recommendation, and Chesapeake Energy is an Inside Value selection. The Fool owns shares of Chesapeake Energy and Infinera. Try any of our Foolish newsletter services today, free for 30 days.

Fool contributor Rich Duprey owns shares of Huntsman but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a stress-free disclosure policy.


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