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, then it may be worth our while to see which others they think will succeed.
Not every short sale goes as planned, which makes shorting a risky proposition. Stock prices can be irrational longer than you have the money to stay in the game. So don't use this as a list of stocks to sell or buy -- just as the launching pad for further research.
Underdogs still wag their tails
Heavy equipment maker Caterpillar (NYSE: CAT ) reported 60% growth in Latin America this past quarter as mining activity grew and infrastructure construction propelled a 72% sales increase in April. That was following a 75% increase in March, which indicates the region will continue to see further gains. Joy Global (Nasdaq: JOYG ) reported strong results last month that were driven by mining equipment and machinery sales.
But those developments were presaged last year when Mine Safety Appliances reported a 20% increase in revenues, primarily on the strength of advanced mining activity in Latin America. Business has been such that the board increased its dividend by 4% to $0.26 per share, giving it a yield of 2.9%.
With 90% of CAPS members rating the safety equipment provider to outperform the broad market averages, it seems they're expecting the growth cycle to continue. China is a driver for continued mining operations in Latin America (and industries everywhere, for that matter), so let us know on the Mine Safety Appliances CAPS page whether that engine will stall bringing down everyone else with it.
And eroding foundation
Although Citi Trends may sound like a certain financial institution decided to get into the fashion business -- and first quarter results were what you'd expect from such a mash-up -- the urban wear retailer merely is suffering through an economic situation that disproportionately impacts its target customers more than other demographic strata. A high-end retailer like Tiffany and an aspirational luxury purveyor such as Coach can navigate the recession with relative ease, whereas Citi Trends saw a 7% decline in same-store sales, and profits shrank to $0.83 a share.
Clothing retailers are also struggling with the rising cost of cotton, which has hit record highs. It's eaten through the earnings of Gap (NYSE: GPS ) , Aeropostale, and Wet Seal like a plague of ravenous boll weevils.
Highly rated CAPS All-Star TMF1000 also worries about the lasting impact of high commodity costs, but is hopeful the new Citi Lights format will process growth faster than a cotton gin.
Although, the new Citi Lights format is just beginning, it shows promise and those new conversions, though few in number so far, showed positive comps while the rest of the chain was significantly negative. In time, I think they new format will be adopted by the company and that will lead to stronger sales.
See what the retailer's trends are on the Citi Trends CAPS page and keep tabs on it by adding it to the Fool's free portfolio tracker.
Walking away
Despite a cold and wet planting season in North America this spring, fertilizer giant Agrium said second quarter earnings are going to be much better than previously thought. Those high cotton prices that adversely impact clothing retailers also drive farmers to want to plant more. What’s more, corn is in high demand and short supply as we continue to fill up our gas tanks with ever greater amounts of feed stock.
Fertilizer producers beyond Agrium, like Mosaic (NYSE: MOS ) and Terra Nitrogen, will reap the benefits from farmers looking to increase their yields. Adding in such macro issues like a growing global population and diminishing arable acreage, there's just a lot of demand for products that will help farmers squeeze more plants out of less space.
With 97% of the more than 1,700 CAPS members rating Agrium to outperform the broad market averages, it's clear they think there will be many more bumper crops for the fertilizer producer. Add Agrium to your watchlist to see whether it can help your portfolio grow as well.
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