These 5 Underdogs Are No Dogs

Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest guys in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.

At Motley Fool CAPS, we also have members who find the chinks in a company's armor and correctly call its fall. Our "Underdogs" have earned 100 or more CAPS points by 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. Instead of studying more of their pessimistic picks, we'll focus on the stocks these top members expect will outperform the market. If these investors have scored big by correctly predicting which stocks will fail, it may be worth our while to see what they think will succeed.

Not every short sale goes as planned, making shorting a risky proposition. 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 -- just the launching pad for further research.

Underdogs still wag their tails
Oracle is going to have a big fight on its hands if CEO Larry Ellison sticks to his guns about not giving up Sun Microsystems' MySQL database business in order to win European Commission (EC) approval for the pair's merger. The commission is concerned about reduced competition in the sector if the deal goes through. Competition commissioner Neelie Kroes has a long history of issuing harsh antitrust decisions, most notably against Microsoft (NASDAQ:MSFT). Yet it seems that it's precisely because of Oracle's rivalry with Mr. Softy that Ellison wants to keep the MySQL segment.

According to a recent study, Microsoft SQL Server is the most-used database in major emerging-market countries such as China and India, with more than half of developers using the product. But Sun's MySQL is close behind at 46%. Having to give up the field to Microsoft is something that Ellison would be loath to do.

Despite the U.S. Justice Department having given Oracle the green light to complete the deal -- Ellison says Sun Microsystems is losing $100 million a month because of the delays -- the EC has opened up an antitrust investigation. CAPS member woppi likes Ellison, and although he's often portrayed as bordering on megalomaniacal, a brash personality could be just what Oracle needs here. However, there is the risk that it could get the company into much deeper hot water with a commissioner who apparently relishes her own time in the spotlight.

Another wagging tail
The market's detour on Thursday hopefully won't cause chip maker Marvell Technology to become lost in the wilderness. Just when it was looking like an improving economy would keep customers buying the company's new and existing products, a surprising decline in overall manufacturing indicators might put a damper on things.

Marvell's chips are used in a broad range of consumer devices, from hard drives to smartphones. The growing demand for smartphones recently led rival chip maker Texas Instruments (NYSE:TXN) to boost its revenue and profit guidance for the year.

Everyone was getting euphoric last month when the Institute for Supply Management's purchasing managers index indicated the economy was expanding for the first time since January 2008, but it turns out there was really less to be excited about. Now the caution lights are on and we await more clear signals that the economy is indeed turning around.

Still, CAPS member FrozenCanuck is wary of Marvell's competition:

Broadcom is going to destroy their position in xscale processors for mobile phones. Already achieved wins at [Nokia], Samsung. Betting [Research In Motion] is next. Marvell is toast. Also think they'll lose Wi-Fi presence in smartphones, to Broadcom.

There's no need to fear ...
Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. Start your own research on these stocks on Motley Fool CAPS. 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.