These 5 Underdogs Are No Dogs

Short-sellers and hedge funds, though sometimes shadowy, are occasionally seen as the smartest guys in the room. They did their homework and will bet their capital against the crowd. It's not the most popular way to go, but the rewards can be quite lucrative.

On Motley Fool CAPS, we've got our own brand of leading analysts who found the chinks in a company's armor and correctly called its fall. "Underdogs" are investors who earned 100 or more CAPS points correctly predicting that one or more stocks would underperform the market.

Let's look at some of the recent calls these All-Star investors have made. Yet, just as hedge-fund operators don't always go short, we're going to look at recent Underdog picks no matter which way they've called them.

Underdog

Member Rating

Company

CAPS Rating (out of 5)

Call

EverydayInvestor

100.00

Apollo Group (Nasdaq: APOL  )

*

Underperform

goldminingXpert

100.00

Geron (Nasdaq: GERN  )

**

Underperform

nicvo

99.99

SunTrust Banks (NYSE: STI  )

*

Underperform

d1david

99.97

StemCells (Nasdaq: STEM  )

**

Underperform

Wollac

99.96

XL Capital (NYSE: XL  )

*

Underperform

Not every short sale goes as planned, so it's a risky position to hold. 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, but rather as the launching pad for further research.

Underdogs still wag their tails
Stem-cell research holds lots of potential, and investor support for possible therapies has been building up like water behind a dam. After eight years of federal refusal to fund such research, it seems the dam burst when Geron announced the FDA had accepted an application for what reports indicate is the first clinical trial of a therapy based on embryonic stem cells. While the ban on federal funding is still in place, it doesn't cover privately funded research, which is what Geron has.

Shares in the biotech jumped 60% on the news -- even rival StemCells was up in response -- and while investors have settled back down some in the aftermath of the euphoria, CAPS members like btk1400 remain enthused:

"This could result in big results but can the company make any money? Let's hope they don't make the same mistake as DCGN (Decode Genetics) all sizzle and no steak. Obama will need to open his wallet for this stock to fly."

Yet as top-rated CAPS All-Star TMFBiologyFool cautions in giving it a thumbs-down, "Yikes. Let's see the clinical trial data first." This company is still essentially a startup, not an established biotech like Amgen (Nasdaq: AMGN  ) . There's a very long road ahead for Geron, and clinical trials are only the very first (and smallest) step. There is concern among some investors that Geron may yet be poised to plunge.

An enriching investment
With talk of finding strategic partners filling the air, it's not so surprising that when XL Capital renegotiated with its lenders, it was seen as doing so from a position of weakness. This came despite the company's claim that it saw no need to raise additional capital. Contrast that with MetLife (NYSE: MET  ) , which sold $2.3 billion in a secondary offering last year, but was able to portray the cash infusion as a war chest it could use to acquire its weaker competitors.

Still, CAPS member TraderMRW finds the market pricing XL at absurdly low valuations, considering upcoming events that should alleviate some of the pressure it is under:

"This company is trading so far below legitimate book value as to be absurd. The have an excellent new CEO who is navigating them out of troubled waters. For example, XL had significant exposure to CDS, which the new CEO wisely paid a lump sum to almost completely eliminate. Also in the positive is the fact that approximately $750 million in debt is about to be converted to equity at a price many multiples of the current price. Finally, they have already taken significant mark to market writeoffs for what is a high quality fixed income portfolio."

There's no need to fear ...
When underdogs have their backs against the wall, that's when they can shine their brightest, but it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. So 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. There's more there than you think.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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