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, the skeptics' favorites on this list aren't automatic buys. But they do offer excellent starting places for your own research of extreme buying opportunities.
Inquiring minds want to know
With Merck (NYSE: MRK ) taking over development costs of Ariad Pharmaceuticals' cancer treatment ridaforolimus, the biotech is in line to reap the rewards of its efforts. It could possibly receive more than $500 million in milestone payments when the drug makes it to market (assuming clinical trials continue their positive progress) while still being able to focus on its pipeline of drug candidates.
Shares of Ariad, after initially rising on the news, have been steadily declining, perhaps in part because of wider losses incurred last quarter. Although they're up 70% over the past year, Ariad has fallen in recent weeks, dropping 23% over the past month, a much steeper decline than the CAPS biotechnology sector's 8.6% drop.
CAPS members still feel strongly about the biotech -- 89% of the 280 members rating it indicated they thought it would outperform the market. With a strong pipeline in place, a significant deal with Merck inked, and a new lower price, this could be the opportunity investors have been seeking.
No sinking feeling
It's no secret that Las Vegas was one of the worst-hit cities in the recession, and now that it appears we're heading into a new downslide, hopes for recovery are dimming in Sin City. For a destination whose fortunes are built on the hope of hitting it big, it's going to be coming up craps for sometime yet for the casino industry.
Boyd Gaming is hurting right now from the outlook for the city's recovery. Nine of its 15 properties are located there (and its delayed Echelon project is there, too). Shares of the casino operator fell nearly 30% in June, while MGM Resorts (NYSE: MGM ) was off 20%. Las Vegas Sands (NYSE: LVS ) was down just 4%, more likely owing to its exposure to the Macau market.
CAPS member TEXASPOORBOY says the odds are still with Boyd, however, due to its management team:
[Boyd Gaming] is on the way up, good people running it and look to start being in the black soon. If you want to be in the winning end.Stay with [Boyd].
Delivering the goods
Delcath Systems' positive spin on the ability of its drug delivery system for melanoma patients to, well, deliver has convinced some investors it still has monster potential. Unfortunately the audience at a cancer meeting last month didn't get the same response as Bristol-Myers Squibb (NYSE: BMY ) , and the stock has been falling since. That's good enough for CAPS All-Star member and biotech guru zzlangerhans, who says the positive developments, coupled with the discounted price, makes Delcath a candidate to outperform the market:
What really surprised me and convinced me to concede defeat was their finding of a survival benefit. The share price has now shrunk by more than 50% since peaking at 16. While the stock seemed clearly overpriced at that level under the best of circumstances for Delcath, I'm a little confused by the magnitude and gradient of the pullback. It's hard to imagine that Delcath won't rise above 10 again in the run-up to their inevitable submission of the NDA for the PHP.
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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