Stocks That Swayed the Skeptics

It pays to be skeptical when you invest. In addition to doubting what the analysts tell you, you often have to discount what the companies tell you, too. On Wall Street, going against the grain can reap huge rewards. Investors such as Buffett, Graham, and Neff abhor the "wisdom of crowds."

Today's new breed of contrarian investor can be found at Motley Fool CAPS, where these savvy Fools are willing to see both the upside and downside of a stock. While their often negative opinions peg them as "skeptics," their top CAPS ratings mean they're right far more often than not. And when they find a stock they actually believe will outperform, perhaps we should take notice.

Here are some recent picks from our list of Foolish CAPS skeptics:

Just as a list of their worst stocks would not be a list of stocks to short, this list of the skeptics' favorites isn't automatic buys. But they do offer an excellent starting place for your own research of extreme buying opportunities.

Inquiring minds want to know
Fools shouldn't be surprised that security-conscious China presents a big opportunity for makers of technology to monitor its citizens. Homegrown companies like China Security & Surveillance Technology aren't alone in tapping into the large and growing market, Honeywell (NYSE: HON) and United Technologies (NYSE: UTX) are also providing the Chinese government with the means to keep tabs on its people.

Ostensibly, the companies focus on the security aspects of their assistance, such as at the Beijing Olympics and this year's World's Fair in Shanghai, where the threat of terrorism is arguably higher. However, the proliferation of monitoring devices in houses of worship and Internet cafes makes that argument a harder sell.

The tighter competition caused China Security's margins to slip in the most recent quarter. The company exerted pricing pressure to maintain share among its corporate clients, though it derives 55% of its revenue from government contracts. Coupled with a recent secondary offering, the surveillance specialist suffered a sharp drop in its stock as investors fled. But CAPS member tcpprog believes the lower price presents a new opportunity for this growth stock:

CSR just dropped 17% after reporting an EPS that met analyst earnings. The current P/E of around 6 makes this stock, with plenty of room to grow (quickly). The stock is a steal at it's current 6.20 level.

You can monitor its progress on the China Security & Surveillance Technology CAPS page, where you can offer your opinion on its future without fear of retribution.

Powering up
The slight increase in demand Exelon is forecasting for its utility customers in the Philadelphia area is obviously better than the 1.5% decline it had previously expected, but it's not exactly a case for a rip-snorting recovery. Yet with better prospects in Chicago, and the addition of new customers -- the first time since 2008 it's added to its rolls -- a case can be made that Exelon, PG&E, and other utilities that were lagging the market may now start to outperform.

CAPS member urogunner highlights the sector's underperformance, but notes the dividend received while waiting for the market to realize Exelon's value:

Significantly below intrinsic value. Utilities have lagged on the market rebound. In addition it has a good dividend while we wait for price appreciation.

A bright idea
Utilities might realize greater demand from solar customers, too. PG&E contracted recently with First Solar (Nasdaq: FSLR) to supply California customers with solar power, and the solar specialist has proved to be one of just a few such companies able to achieve positive free cash flow. That might help explain why First Solar shares are up more than 12% this past quarter, while Yingli Green Energy, which was FCF negative in its last reported fiscal year, is down 5%.

Yet Yingli is seen as a low-cost producer on the same level as Trina Solar (NYSE: TSL), which ought to help it run hotter in the long run, as fojaha suggests, even if near-term events knock it down:

A little smaller price would be more to my liking, But if it moves as I expect I don’t want to play catch up.

Seeing past the obvious
Skeptics know that just beyond the storm clouds lies a shimmering morning. Conversely, the sun can't shine forever, whatever the crowds may think. It pays to 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. What's your forecast? Drop by CAPS and tell us which stocks are your favorite contrarian picks.