Short-sellers and hedge funds -- oftentimes one and the same -- have been getting a lot of scrutiny lately because of their bearish market calls. Although they mostly prefer to work in the shadows, some, like Greenlight Capital, have on occasion taken quite public stances on companies they think are poised to fall.
Sometimes lauded, more often than not reviled by the public at large, short-sellers are often seen as the smartest people in the room. They've done their homework and are willing to bet their capital against the seemingly inexorable rise of most companies and markets. It's a tough position to take, but the rewards can be quite lucrative.
On Motley Fool CAPS, we've got our own brand of leading analysts who have found the chinks in a company's armor and have correctly called a stock's fall. Underdogs are investors who have earned 100 or more points on CAPS by correctly predicting a stock would underperform the market.
We're going to take a look at some of the All-Star investors who've achieved this distinguished label. Knowing which stocks hold downside risk is just as important as knowing those that have upside potential. Yet, just as hedge fund operators don't always go short, we're going to look at some of the most recent picks of the Underdogs, no matter which way they've called them.
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 we don't recommend you use this as a list of stocks to sell or buy, but rather as the launching pad for further research.
Bank on this
While predictions of Lehman Brothers' demise may have been exaggerated, if not premature, the wobbly legs upon which it stands haven't made being a shareholder feel like anything less than being a pallbearer. With shares off more than 80% over the past year, it has certainly been dead money. Yet as the stock continues to fall through the shaking financial markets, Lehman's CEO is considering taking the company private to remove it from the glare of the public markets. Rumors concerning the institution's viability have spurred the Securities and Exchange Commission to begin investigating the rumormongers.
Even if Lehman stays a publicly traded entity, investors like CAPS member COOLSTOCK find there's enough potential to warrant further consideration.
Lehman has been battered and beaten harder than most other financials. The firm is preparing for a major investment into its Wealth [Management] business. This move will begin to build a consistent revenue stream that will complement its other, more inconsistent [business.] This one has gone down for a while. It has been sold way [too] much. [It's] time for a [turnaround] in trading and investment banking.
Not tilting at windmills
When Germany announced that it was cutting subsidies to the solar industry, producers like First Solar (Nasdaq: FSLR ) and Solarfun Power (Nasdaq: SOLF ) dropped along with the rest of the sector. Spain is considering similar moves, so solar energy suddenly didn't seem so hot. Yet Evergreen Solar is shining a light on the feasibility of the industry, announcing that it signed a $1.2 billion deal with a German company to provide it with solar panels.
CAPS member Chemdawg recently wondered about the future of alternative energy.
A decent company at a great price. Solar may be risky, but the oil price increases mean that it will be getting more attention than it was in the past. [With] so much emphasis on alternative energy, maybe something useful will come out of it.
There's no need to fear ...
When underdogs have their backs against the wall, that's when they can shine their brightest. These CAPS Underdogs have been doing well with their calls so far, but we haven't yet heard from you. Don your superhero cape and head on over to Motley Fool CAPS to add your opinion.