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 the 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
When your hopes for gains rest on the SEC suing Goldman Sachs (NYSE: GS ) for fraud, it doesn't say much for your business. That's the position bond insurer MBIA finds itself in, after the financial-industry meltdown left its business in ashes.
There's a certain ring of truth to the charge that Goldman misled investors who purchased collateralized debt obligations that Goldman itself was betting would lose value. You could count MBIA among those investors, since it had the job of insuring the CDOs the investment bank was marketing. Yet the Goldman story is not so simple as it seems, and MBIA, like many of the counterparties who bought the investment vehicles, is hardly a babe in the woods here.
While news of the fraud charges helped rally MBIA's shares, its latest quarterly report shows just how difficult the bond insurer's business is these days. Losses widened to $1.5 billion on unrealized credit derivative losses that were marked to market, slicing its book value nearly in half.
Although slightly more than half the CAPS members rating MBIA believe it will ultimately outperform the market, only 46% of the All-Stars think that will be possible. With the company's shares down 37% from their recent highs, you can bond with those rating MBIA by heading over to its CAPS page and insuring that your opinion on its future is recorded.
No sinking feeling
We already know that the wreckage of Transocean's (NYSE: RIG ) rig Deepwater Horizon will be an ecological disaster. Globs of oil are hitting Louisiana's shoreline, and the spill has supposedly reached the Loop Current. That means we can start counting down the days until it wreaks havoc on Florida's coast. Eventually, the oil might even reach the Jersey shore; what will Snooki and The Situation do?
Still, the threat to fisheries in the area of the spill is no laughing matter, and it's hard to argue that BP's (NYSE: BP ) inability to stem the flow of oil won't have wide-ranging effects. Despite initially saying that the impact should be minimal, Omega Protein is reeling from the possibility that its fish-oil supplements will be devastated by the catastrophe. It's had to redeploy its fishing fleet to other waters, now that Louisiana has closed off certain sections for fishing.
CAPS All-Star member dragonLZ cites Omega Protein as the largest omega-3 fish oil producer, neatly fitting his portfolio requirements. The Gulf disaster has beaten shares back down (off 34% over the past month), and I'd hazard a guess they'll be depressed until the leak is plugged at least. Why not plug a void on the Omega Protein CAPS page with your opinion on how the oil slick will affect commercial fishing?
A bright idea
You want manic? Just try following TiVo investors, who swing between episodes of euphoria and depression as often as they flip channels. In March, TiVo shares rocketed skyward, after a federal court said DISH Network (NYSE: DISH ) infringed on its patents. The satellite signal operator even said it was willing to shut down all of its DVRs if the decision stood. Then, just two months later, an appeals court said DISH could appeal the ruling. TiVo shares plunged even farther than they'd risen.
This looks to me like a good time to stake a claim in TiVo's stock, if you think the DVR specialist will prevail. (I tend to think it will, so I've marked it on CAPS to outperform.) DRovito says we've hit the rewind button on this program:
Just playing this same old story once again. Get a favorable court decision on patent infringement case, Tivo shoots up 40%. Opposition appeals court decision, Tivo drops 40% . . . I wonder if Dish and Echostar executives own any Tivo stock.
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, so stop by and tell us which stocks are your own favorite contrarian picks.
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