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.

Underdog

Member Rating

Company

CAPS Rating (out of 5)

Novavm 99.95 Hecla Mining (NYSE: HL  ) ****
msIRA 99.98 Procter & Gamble (NYSE: PG  ) *****

Source: Motley Fool CAPS.

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.

A silver lining
It's probably not used to being considered an underdog, but top silver miner Hecla Mining has been put behind the eight ball after having its lead Lucky Friday mine shut down by regulatory overseers until 2013, when it expects to have debris cleared out from years of digging.

That, of course, was just the culmination of a series of events that tarnished one of the industry's premier names last year. Today it's shares are down nearly 50% YOY, the worst performance among major silver miners. However, that makes it all the more attractive as an investment.

Hecla is still achieving significant production out of its Alaska project while possessing sufficient cash and borrowing power to get it through the lean times. It's got its sights set on acquisitions, following Pan American Silver's (Nasdaq: PAAS  ) bid for Minefinders, though it might not limit itself solely to silver shops. It says gold properties in the U.S., Canada, and Mexico may offer tantalizing opportunities. Paramount Silver & Gold (AMEX: PZG  ) has certainly found success south of the border with its wholly owned San Miguel mine in Mexico.

I rated Hecla on CAPS late last year to outperform the markets and agree with c4ranch that one these mine issues are resolved, the silver miner becomes a growth story again -- or a buyout opportunity:

Once problems with the closed mine are corrected and production ramped up, silver prices should be up and this stock will at least double. If not, they remain a great purchase by another mining company.

Add Hecla Mining to your Watchlist to see how it all plays out and whether resolution of its problems makes an investment here dead money for some time to come.

Nuts! It's a scandal after all
Walnut grower Diamond Foods (Nasdaq: DMND  ) finally 'fessed up that $50 million in "momentum" payments made to walnut growers in September last year were actually for walnuts purchased the year before and were improper. As a result Diamond has to restate two years' worth of financials and has put its CEO and CFO on administrative leave because of their role in artificially boosting earnings. Had those payments been included in Diamond's financial statements then, operating profits would have been halved. It also jeopardizes its bid to buy the Pringles potato chip brand from Procter & Gamble.

The consumer products giant was already having a tough time selling the deal to its shareholders because it would call for them to accept Diamond Food shares as part of the sale, which they were loath to do. Now that the nut-grower's shares are an additional 36% lower than where they were just yesterday -- and more than 75% below where they traded at their peak in September -- it will be an even tougher sell.

But the revelation probably gives P&G an out, though they haven't made clear their intentions yet. With interest from other companies on the table, however, I see this deal falling through rather quickly. The consumer goods company wants to exit the food business and would probably prefer to do it sooner rather than later.

With more than 7,300 CAPS members rating Procter & Gamble to outperform the market indexes (97% of all those weighing in on the company), it seems they believe this is just a minor bump in a broad road of strong, steady growth.

Add P&G to the Fool's free portfolio tracker and give us your thoughts on whether it's a gem of a company on the Procter & Gamble CAPS page.

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.

Fool contributor Rich Duprey owns shares of Paramount Gold and Silver, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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