Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest ones 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 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
The news that Sierra Wireless (Nasdaq: SWIR ) is moving into the intelligent mobile hot spot now occupied by Novatel Wireless drew a lot of attention. With Novatel Wireless already expecting weak demand for its MiFi product because customers couldn't sell as many devices as they had thought, the idea that a rival will compete for the limited demand apparently is making investors believe margins will cave in.
Yet Novatel Wireless has said in no uncertain terms that it's more than willing to play hardball and will encroach on Sierra's playground in the machine-to-machine sector. Machine-to-machine, or M2M, utilizes cellular technology to link a group of devices and a computer server together so they can transmit data between themselves.
That means some top-rated CAPS members, like vanamonde, think that when you add it all up, Novatel Wireless investors will come out on top.
This is puzzling. Even if you do not believe the CEO's argument that MiFi growth numbers were below expectations mainly due to an unfavourable channel inventory cycle, the [numbers] still do not add up.
NVTL is a profitable company with improving margins, with a forward P/E of around 10, no debt, $5.55 in cash and a promising new gadget. Even if MiFi catches on slowly or does not catch at all, it is hard to make sense of declining stock price and that 22% short interest. Upside and downside risks seem badly out of sync at this price level.
The market's just not giving off strong signals for Novatel right now. M2M is an untested niche for it, even though it's essential that it branch out. More competition for its key MiFi business is coming from Qualcomm (Nasdaq: QCOM ) and Ericsson; MiFi accounts for 40% of Novatel's revenues. Verizon and Sprint sell MiFi, but they've each joined with other providers of M2M, meaning Novatel is going to need a new outlet for its M2M product.
There are indeed opportunities here for Novatel, because analysts expect the M2M market to grow to about $57 billion annually. The CAPS community is solidly behind those efforts: More than 92% of those rating the mobile broadband gadget maker pick it to outperform the market. Head over to the Novatel Wireless CAPS page to give us your view of its prospects.
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.
Try any of our Foolish newsletter services today, free for 30 days. Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a stress-free disclosure policy.
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