These Underdogs Are No Dogs

Short-sellers and hedge funds are sometimes the smartest folks 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
The forecasters at The Weather Channel are expecting July to September to be warmer than normal as a result of a new La Nina weather pattern assaulting the country. Recent blistering heat in the Northeast could be the result of this trend (despite the weather service saying the Northeast should actually experience cooler temps).

Yet if the overall trend is for hotter weather, look for the stocks of utilities like Dominion Resources, Duke Energy (NYSE: DUK), and Excelon to generate heat of their own as people crank up the air conditioning. Yet it might put a strain on the aging energy grid infrastructure, which is why utilities have been leading the way on implementing the so-called smart grid.

While extreme weather patterns can bring periods of higher earnings for investors, most tend to look at the energy industry for its healthy dividends. Dominion yields 4.5%, and Duke and Excelon exceed 5% annually. CAPS member rivermanco says Dominion investors get the added benefit of owning a growth stock:

This is not only a good growth stock, but a high dividend company. Those who are seeking high return dividends and better than average security are going to gravitate toward this stock.

A dose of reality
Look for better near-term results from solar power players like wafer maker LDK Solar and panel manufacturers First Solar (Nasdaq: FSLR) and Suntech Power, as global sales of solar power panels double. With massive reductions in feed-in tariffs in Germany and Italy, developers will increase their rate of installations to beat the cuts. The risk is that higher sales and installations now will mean fewer down the road, as happened with the Cash for Clunkers program and the first-time homebuyers tax credit.

Yet 94% of the more than 1,400 CAPS members rating LDK Solar remain bullish, indicating they see the solar shop outperforming the broad market averages. Let us know on the LDK Solar CAPS page how much of a pall the tariff cuts will cast on the solar industry.

A golden opportunity
If you're watching the Baltic Dry Index to time your entry into the dry bulk shipping industry, you may end up missing the turnaround already under way. The BDI has collapsed 60% since the end of May and is off by almost half in just the past month. Yet Diana Shipping is up 6% over the past 30 days, Excel Maritime (NYSE: EXM) is up 1%, and even DryShips (Nasdaq: DRYS) is just about at breakeven.

While Navios Maritime hasn't been sailing in such calm waters -- falling 9% since mid-June and down more than 26% over the past three months -- that could change as it debulks and heads into the tanker market. Its lower price makes it an attractive stock, one that attracted CAPS member llgrout:

Price is right to get in on this one right now. P/E is decent and the fundamentals are good. All signs point to a rebound. It is totally undervalued unless someone knows something that I don't. So very few underperform calls that it would seem that I am not missing something. I like value picks!

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.