5 Stocks That Swayed the Skeptics

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 can be found 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 they believe will actually 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 collection of the skeptics' favorites isn't a list of automatic buys. But they do offer an excellent starting place for your own research.

Skeptically skeptical
It's new to Wall Street and has been trading just a few days, but that hasn't stopped investors on CAPS from weighing in en masse on Visa. So far 1,298 investors have cast their votes, and 96% see it as a winner. A slightly lower portion of the CAPS All-Stars who weighed in -- 90% of them -- see it as outperforming the market.

A number undoubtedly feel, as CAPS player larryrosen does, that people will continue to use their credit cards even in a recession, and that those cards will bear the Visa logo more frequently than others. Moreover, All-Star mateub, with a 94.03 player rating, sees only limited competition for the credit-card distributor:

Visa has one of those network-effect business models that makes it incredibly difficult for new competitors to enter the market. Even after the big pop today, this stock has room to run over the long term. Look at MasterCard ...

Ring it up!
It probably would be instructive to look at MasterCard (NYSE: MA) for comparative purposes. In its latest quarterly report, the Visa rival reported revenue growth of 27%, to $1.07 billion, with 916 million cards issued, improving operating margins by more than 10 percentage points. That's a spectacular report.

Now when we look at Visa, we see that it processes nearly twice as many transactions every year as MasterCard does: 44 billion versus 23.4 billion. During just the fourth quarter, it processed $9.1 billion in transactions. That's more than American Express (NYSE: AXP), Discover, and Diner's Club combined -- for the entire year. Visa's IPO raised a record $18 billion, and analysts think it could, within a year, reach the $200 price level at which MasterCard trades.

Yet some All-Star investors like dwot remain unconvinced, thinking that the IPO didn't leave a lot of money on the table, while CAPS player Rhoa thinks it is running on hype, not valuation:

This stock is way overvalued and running on pure speculation that it holds weight like MasterCard. [Definitely] a trash stock and I will definitely short sell.

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? Join 92,000 other Fools at CAPS and tell us which stocks are your favorite contrarian picks.