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 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 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 full of automatic buys. But these ideas do offer an excellent starting place for your own research.
Skeptically skeptical
You'd think an oil refiner like Valero Energy would be making money hand over fist with gasoline topping $4 a gallon. After all, if ExxonMobil (NYSE: XOM) is, why shouldn't Valero? In fact, refiners have been pinched at the pump just like consumers, because sky-high gas prices cut into refining profits.
That hasn't swayed investors like CAPS player jwaydog, who felt back in April that the unrelenting demand for oil will allow refiners like Valero to motor on:
Refiners have been beaten down recently due to decreasing margins (crack spread) and a perceived decrease in demand for gasoline due to a weakening economy. I believe oil prices will pull back as money flow from commodities comes back into equities. Gasoline demand will not decrease! ... The street seems to believe everyone is out for joy rides in the suv. Driving is not a luxury. In the past year most consumers have already curtailed needless trips in the car thus gas consumption will not fall into this summer compared with last... Americans simply have not yet invested in significantly more fuel efficient cars and until we do gasoline demand will not decrease regardless of economic downturns.
One lump or two?
Metallurgical coal is a key component in steelmaking, and Alpha Natural Resources has found it can take its lumps. As steel production in developing economies devours much of the coal supply, expect coal prices to rise further. At least one analyst is expecting demand to outstrip supply by double-digit percentages for the next few years. Alpha is this country's largest coal exporter, shipping 8 million of the 59 million tons exported by U.S. mines last year, and investors are not expecting to see coal in their stockings come Christmas.
Maybe it's because coal has a blackened-face image right out of Mary Poppins, but investors such as CAPS player WBenes feel it's been an ignored factor in the energy equation:
Part of the largely ignored energy sector is the increased value of coal and coal producers. This is one of several stocks I have selected in that sector. I feel the oil companies have already seen their significant growth and will only have moderate gains in the near term. This stock is one of several which has seen significant increases in the past few months and should continue to rise.
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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