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 also have 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, so shorting is a risky proposition. Stock prices can be irrational for 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 a launching pad for further research.

Underdogs still wag their tails
Will biotech Myriad Genetics have lost the battle only to go on to win the war later on? It sure looks that way. sanofi-aventis (NYSE: SNY) caused Myriad's stock to topple last month, when a cancer-fighting drug it was testing didn't show that patients taking it lived any longer. That was a blow to Myriad, because the therapy was the leading candidate in a group of drugs seeking to prevent cancer cells from repairing themselves after chemotherapy.

Myriad makes a test that would identify patients best suited for this particular treatment, only sanofi chose not to use it. Although AstraZeneca is testing a treatment using Myriad's genetic marker for breast-cancer patients, it put the study on hold until it gets results from an ovarian-cancer study it's performing, but that's a much smaller market to sell into. Abbott Labs (NYSE: ABT) is also testing a treatment that starts off using Myriad's marker, but potential positive results are further down the road.

Although Myriad's marker limits the universe of patients tested, it increases the likelihood of success for their drugs. That may ultimately give Myriad a rich conduit to sell into -- only it'll have to wait a bit for the proof to come.

Some 87% of the CAPS members rating Myriad believe it will end up outperforming the market, but 96% of All-Stars rating gave the biotech their vote of confidence. I agree that success is coming even if it's delayed, and I've said so on the Myriad Genetics CAPS page. Follow me over there to let us know whether you agree if this setback will be just the prelude to a bigger score down the road.

Doubling down
Of course, even if the pharmas are successful, there's no guarantee that Myriad will come out ahead. Novartis might not be gaining the traction it had hoped for on sales of schizophrenia drug Fanapt that it licenses from Vanda Pharmaceuticals (Nasdaq: VNDA). Although Vanda was able to turn a loss last year into a profit this time around, and monthly prescriptions have increased to 8,000, sales have been slower than anticipated.

Eli Lilly apparently had similar concerns about Cymbalta, a treatment for depression, and expanded it to include fibromyalgia. Novartis told Vanda that it will start clinical trials early this year for a once-a-month injectable depot formulation of iloperidone, the generic name of Fanapt. That's either an endorsement of the company's belief in the treatment, or a recognition that it's going to need a different formulation to gain more traction.

Fully 97% of CAPS members rate the pharma to outperform the market -- a pretty clear indication that they think it has enough of a portfolio to continue beating the market, regardless of which way Fanapt sales go. You can add Novartis to your watchlist and stay up to date on Fanapt, as well as all the other drugs it has on the market.

A well-dressed opportunity
After a recent article mentioning Yongye International, CAPS member123spot asked me why it was that Yongye and China Green Agriculture (NYSE: CGA) base their products on fulvic and humic acid but U.S.-based companies don't.

It was a good question, but one I couldn't find an answer to. The minerals seem to have some beneficial properties, but it also appears that the jury is out on much of the science behind them. An article that appeared on Seeking Alpha, in which CAPS All-Star goldminingXpert questioned the efficacy of fulvic and humic acid, was enough to spark a response from Yongye. The company's management said Chinese scientists have found that humic and fulvic acids can increase overall yields of crops by as much as 20% while also improving product quality.

Yet with all the concerns raised about Chinese stocks these days, it's not surprising that Yongye's shares are down by almost 20% so far this year. You can add your own perspective on the Yongye International CAPS page about whether this stock would be a good fit for someone's portfolio.

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 at Motley Fool CAPS where your opinion can still save the day. While you're 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.