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's new breed of contrarian investor resides at Motley Fool CAPS, where these savvy Fools are willing to see both the upside and 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 that 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 a group of automatic buys. But they do offer an excellent starting place for your own future research.
Skeptically skeptical
Nuance Communications supplies corporate call centers with voice-recognition technology used for voice-to-text translation and controlling devices through speech. Its Dragon Naturally Speaking voice-recognition software has gained a dedicated following in a variety of industries, and the company has been going on an acquisitions tear, buying anything that might resemble a competitor. Although acquisition-happy companies tend to falter, that hasn't been the case with Nuance.
One competitor it can't seem to buy is Microsoft (Nasdaq: MSFT), which is deploying its own voice-recognition program. Microsoft's Sync technology has made an appearance in a number of Ford (NYSE: F) cars, and it may see wider distribution. By establishing itself early and eliminating rivals, however, Nuance has given itself first-mover status in an emerging industry. The question is whether that will be enough to keep rivals at bay. Or does a Microsoft come in and buy Nuance instead?
More than 5,500 CAPS investors think the Motley Fool Hidden Gems recommendation will continue to outperform the markets by a wide swath. CAPS investor caryc923 finds the greater acceptance of Nuance's technology a factor that will enhance future growth:
The military has found this company. Need I say more? As health care documentation becomes more and more detailed and necessary, this company's integration into one of the fastest growing fields and association with the military will soon take them out of the red.
Similarly, EMG114 just doesn't see how Nuance can't continue to improve upon its results when it's able to progressively attract new clients to its systems:
It's expanding and growing fast and buyouts have helped this company. First of all, the technology that it offers is being used for tech assistance, flight status and ... it has thousands of customers for its products. It has grown mainly through buyouts since it has acquired 18 purchases in the past 8 years. ... Nuance has beaten forecasts the past seven quarters by growing up to 38% and many expect this stock to grow even more for its 2Q.
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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