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
Even with China having the world's largest population of Internet users -- some 500 million, according to the China Internet Network Information Center -- Chinese search giant Baidu hasn't been able to translate that into an effective e-commerce platform. It will be shutting down its Youa site in May, cementing Alibaba's lead in the space.

Baidu will have to content itself with its advantages versus Google (Nasdaq: GOOG). Aside from allegations the government is hacking Google's accounts, Beijing now says the U.S. search king is running afoul of its tax law s. Google naturally denies it.

Yet Baidu suffers from a serious case of Google envy. As the Fool's Rick Munarriz points out, it is cloning Google innovations at every turn, coming out with its own Googleicious versions of search, AdWords, and AdSense, and now possibly the Android operating system. While it's doubtful Apple has anything to worry about on this front, analysts say Baidu is the one carrying a lot of risk, particularly from regulatory and legal avenues associated with piracy and privacy issues .

However, CAPS member irvduffy says that with the government running interference for it, Baidu's got a good chance to succeed: "Baidu is showing power in China and appears the Chinese government has its back (i.e. no Google) to compete with."

The overwhelming majority of CAPS members no doubt agree as 85% of more than 4,500 who've rated Baidu believe it will still outperform the broad market averages. You can add the Chinese search platform to your watchlist and see whether it can continue to torture Google with a constant drip, drip, drip around the competitive edges.

A well-dressed opportunity
Investors puckering up for a big wet kiss from beauty care leader Estee Lauder after it posted strong results over the first two quarters of its fiscal year. Shares have risen 54% over the last six months as revenues and margins have widened . While all of its segments reported gains in the latest quarter, skin care was the leader with 14% growth and 30% operating margins.

Rival Avon Products (NYSE: AVP) hasn't fared quite as well as international sales in China faltered . Its stock is down 14% over the past six months. Revlon has done better, with shares 25% higher.

Fools Alyce Lomax and Dayana Yochim said back in December that it wasn't putting lipstick on a pig to pick Estee Lauder, appreciating its industry-leading financial metrics. While the stock was trading at 30 times earnings at the time, they said it would be a mistake to call it pricey. As we've seen, the stock proved them right.

Trading at a similar valuation now might have you thinking it's expensive again. Let us know on the Estee Lauder CAPS page whether you think this is just another pretty face

All aboard!
Don't look for General Moly to be the rare earth elements leader. Though its stock got some mileage from that investing thesis last year, the real value is in its Mount Hope and Liberty mines in Nevada where, if it gets the requisite permits, it could become the world's biggest molybdenum miner. Mount Hope alone has 1.3 billion pounds of proven and probable molybdenum reserves; Liberty can produce about half of that over a mine's lifecycle .

Read General Moly's latest earnings release, and you won't see a single mention of rare earth elements . Let speculators look at Rare Element Resources (AMEX: REE) or China Shen Zhou Mining (AMEX: SHZ) for some rarified excitement. But don't ignore the hurdles General has to overcome yet before it's a producer of anything. As I noted back in January when I rated the exploration company to underperform the market, it's got a couple of years to go before any minerals come out of the ground.

The Mt. Hope mine won't begin production until 2013 at the earliest, and Liberty won't be producing until maybe 2015. Overly optimistic sentiment surrounding rare earth minerals has bid up GMO to unrealistic levels and it's due for a return to earth.

While I think there are better places for your money (for the time being at least), give us your thoughts on the General Moly CAPS page when you think it will give its stock new marching orders. Also add it to the Fool's free portfolio tracker and keep tabs on its mining progress.

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.