It pays to be skeptical when you invest. In addition to doubting what the analysts tell you, you often have to discount what the companies tell you, too. On Wall Street, going against the grain can reap huge rewards. Like baseball's greatest place hitter, "Wee Willie" Keeler, great contrarian investors such as Benjamin Graham, Warren Buffett, and John Neff "hit 'em where they ain't."
Today, a new breed of contrarian investor can be found at Motley Fool CAPS, where these savvy Fools are willing to see both the upside and the downside of a stock. While their often negative opinions peg them as "skeptics," their top CAPS ratings mean they're right far more often than not. And when they find a stock they actually believe will outperform, perhaps we should take notice.
Here are some recent picks from our list of Foolish CAPS skeptics:
Just as a list of their worst stocks would not be a list of stocks to short, this list of the skeptics' favorites isn't one full of automatic buys. But it does offer an excellent starting place for your own future research.
Skeptically skeptical
It seems that when one starts understanding the business of semiconductor manufacturer EMCORE, the first question that pops up is "they're in the solar energy field?" In fact the company has been at it quite awhile now, providing power solutions for satellites to aerospace giants like Boeing (NYSE: BA ) . It also uses compound semimaterials rather than traditional polysilicon, which ought to protect it from the shortages that have racked some of the other solar companies.
Yet there is a difference between using EMCORE's concentrator photovoltaics (CPV) in terrestrial applications (which is what it is seeking to do) and using them in space. The CPV technology requires direct sunlight for the creation of power; any cloud cover prevents that from happening. That's what makes EMCORE's solutions useful for satellites, but gives some investors concern that it is not readily transferable to other applications. However, while photovoltaics account for a growing percentage of EMCORE's revenue, fiber optic systems still represent two-thirds of the total.
The business may strengthen when it finally splits its segments into two separate entities, as it has been planning. That ought to hearten investors who have seen shares under assault, losing two-thirds of their value over the past two months before regaining some traction on the split news. A fractious report by a blog attacking the veracity of the finances also served to send shares down.
ResearchLover, a CAPS All-Star with a 94.94 player rating, believes the company should outperform, but also acknowledges that the stock's recent volatility suggests investors are uncertain what to believe:
I think there's no technical reason to buy now, no firm bottom. But what the recent volatility tells me is that people don't trust the value of the fundamentals of an allegedly unprofitable company. In this case, I'll go on the assumption that they have innovative products in some very hot growth markets, incorporation of energy-saving LEDs into infrastructure, and components for broadband, wireless infrastructure. Plus, putting aside the comment from a person who worked there, even if the decision makers at [EMCORE] weren't very bright, they are at least Don Quixote types, going up against this Citron report.
Seeing past the obvious
Skeptics know that just beyond the storm clouds lies a shimmering morning. Conversely, the sun can't shine forever, whatever the crowds may think. What's your forecast? Drop by CAPS and tell us which stocks are your favorite contrarian picks.
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