These Underdogs Are No Dogs

Short-sellers and hedge funds may be shadowy, but sometimes they're 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 also have 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. However, we're going to focus on the stocks that 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, so shorting is 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 consider it the launching pad for further research.

Underdogs still wag their tails
Sensing that the environment in Spain was shifting toward no longer subsidizing solar power, SunPower also shifted its focus. Where the country had accounted for 35% of its revenues in 2008, it was just 3% in 2009. With Spain now retroactively planning to cut premiums by $3.2 billion, SunPower's move was timely.

Of course, SunPower wasn't alone in hightailing it out of Spain. Solarfun (Nasdaq: SOLF) went from having a quarter of its revenues generated in Spain in 2008 to just 1% last year. However, highly rated CAPS All-Star  turtle286 sees SunPower as lagging the market as other countries follow Spain's lead: "This stock will continue to underperform the market as solar stocks get hit with decreased demand due to governments pulling [their] subsidies on solar power (particularly in Europe)."

Although SolarFun has pulled out of Spain, the financial crises rising again in Europe could still threaten its financial position. First Solar (Nasdaq: FSLR), for example, realized 86% of 2009 revenues from eurozone countries, and SunPower gets a little more than half its revenues from there.

A dose of reality
The market for subsidies may not be as strong because of sovereign debt woes, but the BP oil spill is giving alternative energy new life. Wind power in particular is ramping up, with the Global Wind Energy Council pointing to a 31% jump in capacity in 2009. The Cape Wind project in the Nantucket Sound off the coast of Massachusetts, along with wind farms in Texas and North Dakota, show that wind might just be the green tech that will advance furthest.

That bodes well for American Superconductor, which is partnering with China's largest wind-turbine manufacturer to put the wind at the industry's back there. Yet it's also involved in projects here at home, including a plan to unite this country's three power grids in New Mexico. CAPS member drinkmorebeer96 says management seems to think that all of these developments will grow the business: "When an insider is willing to put $6 million of his own money into buying stock it gets my attention."

A golden opportunity
While Alvarion  is pushing for wider adoption of the WiMax wireless-networking platform, AT&T and Verizon (NYSE: VZ) are betting big on LTE, or long-term evolution, a key component of InterDigital's patent portfolio (along with Qualcomm (Nasdaq: QCOM) and Samsung).

Having the biggest wireless-service providers on board is undoubtedly helping propel InterDigital forward. It raised second-quarter guidance well above what the market was expecting, but it also noted that the new forecasts didn't even include the potential business it could sign up before the quarter concludes.

When CAPS All-Star mrindependent looked at InterDigital back in April, he suggested that it was an extremely undervalued stock, considering its position in the wireless-equipment industry.

InterDigital is selling at less than 10 times forward earnings. The company's historical roe's are choppy, but the 5 years average is above 40%. The company has loads of cash and no debt. It possesses significant patents and seems like an attractive cash cow. Besides all of that, the company is well positioned in the rapidly growing cell phone industry.

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.