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. Investors such as Buffett, Graham, and Neff abhor the "wisdom of crowds."

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 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 automatic buys. But they do offer an excellent starting place for your own research of extreme buying opportunities.

Inquiring minds want to know
Being the behemoth that it is, it's not surprising that Microsoft (Nasdaq: MSFT) is under attack from its rivals. While Google's (Nasdaq: GOOG) decision to drop Windows on all of its employees' computers is perhaps one of the more prominent attacks lately, IBM is doing its part to undermine Microsoft and deflect its attempt to gain more share in the mobile phone and so-called hybrid device markets.

IBM is joining forces with ARM Holdings (Nasdaq: ARMH) and a number of other chipmakers to form a company that will develop software for tablet computers, mobile phones, and digital televisions. ARM-based chips are used in virtually all of the mobile phones on the market today, as well as in the iPad, and IBM also has a foundry that makes ARM-based chips for other companies. The joint venture would help IBM in its enterprise-level business too.

With 90% of the nearly 3,800 CAPS members rating IBM to outperform the broad market averages, All-Star Peshorper sees it as a sharp reader of trends:

Brilliant company that changes with the times. Part of the my thumbs up is that it does major R&D in nanotech which I think will allow it to maintain its innovative edge into the next generation of technological breakthoughs.

No sinking feeling
Microsoft is also under the gun from China's lax enforcement of intellectual property rights. Chairman Bill Gates has even gone so far as to criticize the country, saying Microsoft has lost hundreds of millions of dollars as a result of China's actions. But it looks like China is willing to boost the country's competitive edge any way it can, including forcing international companies to give up rights to potentially lucrative products if they want to do business there.

Pfizer was forced by China to sell its swine flu vaccine RespiSure to Chinese local pharma Harbin Pharmaceuticals as a quid pro quo for getting antitrust approval for its acquisition of Wyeth. The vaccine offers high margins and market share for Pfizer, and though the company retains the rights to the drug off the mainland, in China it is allowed to sell only another vaccine, acquired from Wyeth, that commands just 12% of the market. The government performed a similar number on Coca-Cola and prevented its takeover of a local juice maker in 2008 due to concerns about competition. Analysts now expect this to be an even more common occurrence, with China forcing the transfer of intellectual property to its own businesses.

Although this will probably have minimal impact on Pfizer's overall profitability, the trend for U.S. competitiveness in the future is worrisome. CAPS member witness1260 has noticed Pfizer's underdog status lately, but with all its cash on hand this member says it doesn't make sense:

They've got plenty of cash, as everyone seems to have noticed. But they're also way behind the market for some reason. Why? I don't know. The numbers look good. They'll come back with a vengeance.

A bright idea
Is Wal-Mart losing its edge? It is, according to Consumer Reports survey of 30,000 shoppers. Wal-Mart was the only chain store to receive a below-average score in more than half of its product categories, and even its vaunted low-price mantra wasn't enough to sway consumers, as respondents said 10 other retailers had better values. JC Penney (NYSE: JCP) is one of those that supposedly topped Wal-Mart on price, according to consumers.

I've used Consumer Reports many times in the past to shop for products, but I'm not too sure I'd read too much into this survey. For one, Consumer Reports didn't rank Wal-Mart very high last year either, yet it still managed to sell more than $408 billion worth of goods, up 1% in a poor economy. And its commitment to rolling back prices has gotten a new impetus as it seeks to return to its core premise of providing the absolutely lowest prices every day.

CAPS member juzziah thinks Wal-Mart has found the right combination to deliver consistently good results.

The business structure of this company ensures its profitability in good times and bad. It provides numerous "basic needs" items for the consumer. It also has the purchasing power to obtain goods at costs much lower than its competitors and in turn passes these savings to its customers in the form of lower prices. When times are tough, the company attracts customers with its low priced goods and excellent choices. When times are good, people still want to save money, so this opportunity allowwed for continued growth.

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. It pays to start your own research on these stocks on Motley Fool CAPS, so stop by and tell us which stocks are your own favorite contrarian picks.