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
The middle of the road is usually where you'll find dead squirrels, but midmarket retailers like Dillard's, J.C. Penney (NYSE: JCP), and Macy's (NYSE: M) have found a viable though sometimes difficult niche to fill. And if you look at April's retail sales report, you'd think it was a profitable place to stake a claim for future growth.

Dillard's saw merchandise sales jump 10% for the four weeks ended April 30, and comps at Macy's came in nearly 11% higher than the year-ago period. Even Gap (NYSE: GPS) was able to record an 8% increase in same-store sales.

Yet what we're actually seeing is the benefit retailers derived from the Easter holiday that fell later in the month this year than it did in 2010. Maintaining that momentum may not be so easy.

Although commodities are currently getting routed on the markets and oil is falling in price, few suggest we're in a period of deflation. CAPS member bblomgr18 thinks cost concerns will weigh heavily on Dillard's performance: "Retail is facing headwinds with higher commodity prices and still no job growth."

Head over to the Dillard's CAPS page and let us know if the retailer will end up splattered in the middle of the highway.

March to the rear
With one of the largest fleets of oil tankers, Frontline has seen its fortunes fall as the price of oil skyrocketed. There's a glut of ships on the market, similar to the conundrum facing dry bulk shippers, and with charter rates sinking like the Titanic, oil tanker operators have had to resort to "slow steaming" practices to keep more ships busy more of the time. Frontline's shares have fallen 18% in 2011 and are 35% lower than where they were a year ago.

Perhaps there's hope in the earnings report of Overseas Shipholding, which reported first-quarter earnings that beat Wall Street estimates even though charter rates continue to decline. Then again, when the bar is set low enough, even the slightest ray of hope can make it seem like you're sailing into fair weather.

It's going to be rough sailing regardless. Overseas Shipholding said quarterly time charter equivalent revenues were cut by a third from last year and spot rates were down significantly, too.

CAPS members remain hopeful on Frontline, however, with 95% of the more than 1,600 members rating it thinking it will weather the storm. You can keep an eye on its prospects by adding the oil tanker fleet operator to the Fool's free portfolio tracker.

Walking away
At some point during your empire building, you spread yourself too thin. That seems to be the case with retailer Urban Outfitters, which operates as the overlord of the Anthropologie, BHLDN, Free People, Leifsdottir, Terrain, and Urban Outfitters brands. A mix of stand-alone stores and wholesale opportunities has cut into what was generally seen as a reliable retailer during the recession. Even management realizes that now, and after spring deliveries are completed it will return bohemian clothing line Leifsdottir to the fold.

The Scandinavian clothier had been built out as a wholesaler with its products appearing at Bergdorf Goodman, Saks, Nordstrom (NYSE: JWN), and various trendy boutiques. Now you'll only be able to buy Leifsdottir goods at Anthropologie and on its website.

Urban Outfitters is still struggling with comps, and reported that through the Easter holiday weekend, they were still down in the negative low-single digits. But despite the rough patch, CAPS member Akors324 sees it as a sturdy name:

This is one of the better midpriced retailers out here right now. It has consistent earnings and great designs for the target market. I would not be surprised if urban were to do very well.

Add the trendy retailer to your watchlist and reign over the Urban Outfitters CAPS page with your opinion on its future.

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.