These Underdogs Are No Dogs

Short-sellers and hedge fund managers 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
Ever since the dim bulbs in Washington outlawed incandescent bulbs, the prospects for LEDs looked brighter. While General Electric (NYSE: GE) and Phillips (NYSE: PHG) are probably the two names most people associate with lighting, investors really need to look at the specialists in the LED arena, specifically Cree.

After all, Phillips is already looking. They're cross-licensing their LED patents with Cree for blue LED chips, white LEDs phosphors, and even LED backlighting of LCD screens. The move shines a bright light on opening up the LED market, particularly since Phillips owns some of the industry's basic patents, received when it bought up solid-state lighting leader Color Kinetics a few years ago.

As CAPS member Dnomyar220 notes, the transition away from incandescent bulbs is fast approaching, meaning Cree is a better investment sooner rather than later.

Everybody needs to transition into LED lighting eventually, and CREE is one of the pure breeds in the LED lighting industry. I believe that gives them a lot of growth potential, although I plan on also investing in the supply chain.

GE is moving to ensure it will capture whatever real estate it can in the market and has even hooked up with Rambus to develop energy-efficient lighting products for global markets. While GE is no slouch in lighting, Rambus needs all the business it can get these days after the U.S. Court of Appeals ordered a rehearing of its patent claims against certain tech companies. If that hearing or an International Trade Commission ruling goes against Rambus, it's going to need something to show it the way out of the darkness. LED lighting could be the light at the end of the tunnel for it.

In risk, there is reward, and CAPS members like FoolToThink believes the resolution of the litigation will fall Rambus' way, giving it yet another hammer to nail future growth.

pure speculation. But I love [Rambus] for the IP it has created and the potential it has locked up. We'll have to wait til August to see, but this could be 40 by year end if the judges find for [Rambus].

A dose of reality
Politicians typically give "fly over country" short shrift, and East and left coast investors risk doing the same thing if they ignore the potential rural telecoms Frontier Communications or CenturyLink (NYSE: CTL) possess. While there's rightly a lot of chatter about whether Frontier can maintain its dividend in light of purchasing the rural assets of Verizon (NYSE: VZ) -- making it the largest, pure rural telecom in the country -- investors need to look at the opportunity the segment offers.

In the months ahead, Frontier will begin the process of extending broadband service to the unserved and underserved areas in the 27 states where Frontier does business, pretty much in line with the Federal Communications Commission's new National Broadband Plan. It's a big chance to change the face of an area that up till now has been largely ignored, and hwilks believes Frontier is up to the challenge presented by cable and satellite.

Business and Residential land lines will continue to be a growing and profitable market for rural and suburban areas in most sections of the US. Frontier is well positioned to take advantage of this 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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