These Underdogs Are No Dogs

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
There's a lot of doubt built into whether or not Cell Therapeutics can successfully bring to market pixantrone, the biotech company's therapy for relapsed or refractory aggressive non-Hodgkin's lymphoma. For awhile there it looked like Cell Therapeutics would succumb to a bad case of cash burn, but it swung to a $6.7 million net cash position in May, and added another $4 million from a recent private placement. And with a manufacturing agreement in place with Italian drugmaker NerPharMa DS, it will have the wherewithal to actually hit the ground running if the FDA gives pixantrone the green light.

Roughly 90% of the CAPS members rating Cell Therapeutics expect explosive growth from the stock if that happens. 1 But the drug will face competition from Biogen Idec's (Nasdaq: BIIB) Rixutan and Spectrum Pharmaceutical's (Nasdaq: SPPI) Zevalin, a drug in which it once had a stake, among other rivals

That certainly makes a crowded field, but the biotech has global growth ambitions, too. It will file a marketing plan with the European Union later this year. European regulators encouraged Cell Therapeutics to include use for children in its application for the drug.

Penny stocks are always a perilous business, and investors shouldn't ignore the very real risks that face the biotech if any of its plans don't come to fruition. But sometimes, there's reason to hope. Let us know in the comments section below why you think Cell Therapeutics will be able to overcome adversity.

Riding the coattails
The gazillion iPads and iPhones sold by Apple (Nasdaq: AAPL) last quarter let you further appreciate the meteoric trajectory of Cirrus Logic's stock. It's nearly tripled in value so far this year, and quadrupled since its low point last July. Yet looking at expectations for next year's earnings, it's still only trading at 12.9 times those projected profits.

So you think the iPad might kill Amazon.com's (Nasdaq: AMZN) Kindle e-reader, and you feel the iPhone will overcome its antenna issues and dial up more growth than the BlackBerry, but you don't want to pay 33 times next year's expected earnings or $264 a share? Well, invest through the back door by staking a claim to Cirrus, and ride the coattails to profit!

That seems to be the thinking of CAPS member StockMillionare, anyway. StockMillionaire says tiny Cirrus can outmaneuver Apple for faster growth: 

Tied in with Apple's iPhones/iPads, etc. Will move quicker than Apple because of smaller capitalization of 1.3 billion versus Apple's cap of 237.5 billion. Enough said.

A dose of reality
You'll have to stand in line for Linn Energy, which has also a pretty good run up over the past year. Analysts are looking for its assets in the Granite Wash in Texas to be a big catalyst for even more growth and become the dominant master limited partnership in exploration and production. While MLP Enbridge Energy Partners might quibble with that outlook, since it will also use its Granite Wash properties to catapult its growth prospects.

Regardless of who gets to claim top dog, there are probably enough resources in the Wash for many companies to successfully compete there. It's energy's new hot spot. Although CAPS member baselineace is concerned that Linn will have to make payouts even as it records losses, others in the community aren't so worried. Approximately 97% of the more than 800 members who've rated the E&P play believe it will go on to outperform the broad market averages.

There's no need to fear ...
Underdogs often bark loudest 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.