These 5 Underdogs Are No Dogs

Short-sellers and hedge fund managers 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've also got leading analysts 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.

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
There were some telltale signs that Fluor's quarter wasn't going to be as good as hoped, and that guidance for the rest of the year would be constrained. Where construction and engineering firms like Chicago Bridge & Iron (NYSE:CBI) were scoring a number of new lucrative contracts, Fluor faced delays at its U.S.-based refinery expansion sites, which account for about half of all revenues. It more recently had to remove more than $1 billion in backlog because of an indefinitely delayed Russian gas processing expansion.

With energy prices dropping, Fluor saw energy project spending slow, resulting in lower quarterly profits. It might not be a bellwether stock, but as the largest publicly traded engineering firm, Fluor's forecast of further profit weakness has to make economists wonder about the overall health of the economy. Although the Institute for Supply Management's manufacturing index jumped into expansion mode once again last month, it has been fluctuating like that as it tries to find its bearings.

Highly rated CAPS All-Star PebbledsPicks recently blogged that although there was no expectation that Fluor would surge to its $100-a-share heights anytime soon, it would ultimately recover as the market found its way again:

Why is a consistently growing, profitable, solid, well-diversified, 100-year-old company with 25% of its market cap in cash and virtually no debt trading at 11x earnings? Answer: because Mr. Market is currently in one of his depressed moods, which will not last for much longer. In the past ten years FLR's average annual low P/E was 15.7x and its average annual high was 29.4x for an average P/E of 22.6x. Now, IMO, it's just a matter of time until the market regains its senses. Is FLR going back to $100 any time soon? No, not likely. I am confident, however, that FLR will see $60 sometime in the next twelve months, at which point I will sell it from PebbledsPicks for what should be a market-beating gain.

Scratchin' at fleas
Investors in Harvest Energy Trust received a nice surprise when South Korea's government-owned Korea National Oil agreed to purchase the oil and gas specialist late last month. Asian governments have been on the prowl for foreign energy producers recently with China's CNOOC (NYSE:CEO) wanting to buy up huge oil field tracts off the west coast of Africa and showing interest in Papua New Guinea, too. It may have been spurred to action by reports that China's oil imports had reached parity with domestic production, accounting for more than half of total consumption last year.

Even before the buyout announcement, though, Harvest was seen as a winning investment, with more than 96% of CAPS members rating the independent oil and gas producer to outperform the market. While the buyout diminishes the possibility investors will be able to capitalize any further on Harvest's potential, it also wouldn't be the first time a merger agreement has fallen through.

We'll just have to move this one to the back burner for the time being and perhaps look to other energy trusts like Penn West Energy (NYSE:PWE) for opportunities. The Royalty Trusts segment on CAPS is up more than 22% over the past year, better even than Harvest Energy's 13% gain, including the recent buyout run-up.

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 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.