Short-sellers and hedge funds 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. However, we're going to 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
Concerns over the financial stability of Europe combined with doubts about a U.S. economic recovery have conspired to send aluminum prices lower this year. Add in a potentially stagnant Chinese economy and we have the makings of market that could see shares of Century Aluminum, Alcoa (NYSE: AA ) , and even Aluminum Corp of China (NYSE: ACH ) to new depths.
So far this year those three aluminum producers are down an average 36% and they're off about 11% in the last month alone. U.S. car manufacturers might not purchase any more cars this year than they did last (and that wasn't a great year for car sales, if you recall), almost one-third of home sales have been foreclosures, and China's put the brakes on its own housing boom. Greece might default on its obligations, Spain might follow, and the dominoes could fall after that. Unemployment is perniciously stuck at around 10% and ADP reported this morning that small businesses have begun to slash jobs and only 13,000 new jobs were created this month.
Yet Rusal, the world's largest aluminum producer, doesn't expect there to be much change in demand, which it finds to be fairly robust already. Moreover, it expects pricing to recover to around $2,400 a metric ton by the end of the year.
If that's the case, then look for Century and Alcoa to be the better aluminum bets here. Valued at 10 times forward earnings, they have a fundamental bias in their favor. CAPS All-Star TSIF says that there are enough drivers for growth to offset the weaknesses that abound.
Century Aluminum has bounced in and out of profitability the last six quarters, much due to cost cutting. While the recovery may be "rocky" I expect rising demand for aluminum. Summer months, auto, China, etc. all suggest that any offset in a weakened Europe will be offset by other demands on supply.
A dose of reality
Considering Spain is ready to kill off its solar industry, solar shops with significant exposure to the country like Canadian Solar, Yingli Green Energy (NYSE: YGE ) , and Sunpower (Nasdaq: SPWRA ) are taking the news of massive subsidy cuts in stride. While shares have trended lower since the rumors broke suggesting a 30% cut in existing plant subsidies, it's not the kind of action you'd have expected from a move that Spain's solar lobby would "kill us all off." Perhaps they're expecting changes to come through in the end.
Canadian Solar has issues all its own to deal with, including an SEC subpoena regarding its sales in 2009. Apparently CAPS All-Star EnigmaDude doesn't think much of it since he thinks the sell-off in the shares after the announcement indicated it was a time to buy.
Chinese solar-cell maker Canadian Solar Inc (CSIQ.O) said on Tuesday it received a subpoena from U.S. securities regulators seeking documents relating to certain sales in 2009, sending its shares down over 16 percent. Time to buy...
A golden opportunity
SciClone Pharmaceuticals continues to get seemingly good results out of its hepatitis B treatment Zadaxin, which has been a fairly big seller in China. The latest study shows that when the therapy is used in conjunction with vaccines for swine flu, it immediately raises the levels of antibodies in the body during the first six weeks of treatment, though over longer periods of time it performs no better than the vaccine alone.
Based on these results, SciClone believes Zadaxin could also enhance vaccines targeting other types of infections and diseases, including cancer. CAPS members have an enhanced view of the biotech with 94% of the members rating it believing it will outperform the market.
Add your own diagnosis to the SciClone Pharmaceuticals CAPS page and tell us whether it will be able to inoculate itself against the vagaries of the market.
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.
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