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'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
Although a spate of tragic disasters has brought unwanted attention to the energy sector, causing closer scrutiny of our dependence on fossil fuels, of more immediate concern to natural gas producers is the continued glut in supplies. While inventories rose less than expected as a result of warmer temperatures and Gulf of Mexico storms, stockpiles remain elevated, meaning prices will remain depressed.

But don't expect natural gas companies like Anadarko Petroleum (NYSE: APC) or Devon Energy (NYSE: DVN) to stop their efforts to drill even more. Rig counts are rising as drillers bet on improving economic conditions that will boost industrial demand, hotter temperatures, and the start of the hurricane season to help restore some balance to the supply and demand equation.

While Chesapeake Energy took it upon itself to cut production earlier this year, the longer-term trends ultimately portend better conditions. CAPS member davfoo thinks natural gas will play a bigger role in meeting our energy needs, while ww2004 thinks Chesapeake will grab the lion's share of that growth:

Natural gas will play a bigger role in the energy mix for the US over the next several years and Chesapeake is well positioned to profit from the trend. Their production is in the US and on shore. They are beginning a push to increase the amounts of natural gas liquids and oil, using their expertise in unconventional drilling.

A dose of reality
China's agricultural sector also faces concerns about economic expansion. Despite having affirmed its guidance for fiscal year 2009's results last month, China Green Agriculture has seen its stock fall by more than 10% over the past 30 days and it's down 40% year to date. The company still expects to see 40% growth in sales volume over the next two years.

Export growth in the country slowed somewhat last month, dropping to a 40% increase from more than 48% the month before. Banks were also lending less, and the pending IPO by Agricultural Bank of China is expected to be weak. It got less-than-robust demand when it raised money last week in Shanghai.

China Green Agriculture, AgFeed Industries (Nasdaq: FEED), and China Agritech (Nasdaq: CAGC) have all seen their shares suffer in recent months.

CAPS' northbynorthwest and OMightyFool both believe the populous country will generate increased demand over the long run, boosting CGA's prospects, while jahjimhall believes China's new monetary policy will boost the stock's performance:

Defensive move on my part. Stay invested in China, but unaffected by Europe, USA recession. Chinese Yuan now allowed to float vs dollar, will gain value vs dollar, favor domestic chinese companies versus ones dependant on exports. Food is a more basic need than real estate, so avoids that bubble.

A golden opportunity
You can expect your stock to get whacked when its lead drug candidate misses its goals in clinical studies. Cancer drug maker Curis felt the axe when its colorectal cancer therapy GDC-0449 failed to extend the time of disease progression or death. Curis' stock was nearly cut in half on the news.

While that might be a death knell for other companies, analysts still see potential in Curis, since its drug technology could be useful in other cancer indications. CAPS All-Star biotech guru zzlangerhans looks to GDC-0449's results in other areas to help bolster returns:

It's always a bad thing when the most advanced compound in the pipeline gets decapitated, but GDC-0449 is still in phase II trials in ovarian cancer and basal cell carcinoma which should provide topline results in H2 2010 and in 2011 respectively. HSP inhibitor Debio 0932 (the former CUDC-305) is now in clinical trials as is EGFR inhibitor CUDC-101.

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.