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Are These Retail Underdogs Really Dogs?

Rich Duprey
July 26, 2012

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.

On Motley Fool CAPS, we've also got leading analysts 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. However, we're going to focus on the stocks these top members expect will outperform the market. If these CAPS investors have scored big by correctly predicting which stocks will fail, it may be worth our while to see which others 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. And don't end up with fleas by lying down with these dogs until you do your homework.

Short circuiting
The world of big box electronics stores is evaporating. Circuit City got the ball rolling, and privately held Sixth Avenue Electronics followed it last year. While Best Buy (NYSE: BBY  ) doesn't seem in danger of folding just yet, the outlook for its future is pretty grim.

Repercussions from the sex scandal involving former CEO Brian Dunn are still being felt with company founder Richard Schulze stepping down following revelations he was well aware of the improper relationship. It's also had to resort to bribing company executives to stay on board, handing out lucrative bonuses for doing nothing more than showing up for work and breathing. That arrangement so angered Best Buy's compensation consultant that he quit in a huff after the company refused to tie the bonuses to any sort of performance standard.

But of course there are the operational issues. (Nasdaq: AMZN  ) is killing it, and the Christmas Day massacre that resulted in the company cancelling the orders continues to weigh heavily on performance as same-store sales tumbled more than 5% in the latest quarter. Smaller rivals like hhgregg aren't faring any better with comps dropping by a like percentage and its important video segment experiencing a near-17% plunge.

While I did note last month that Schulze wants to take Best Buy private, it really offers no hope for current shareholders, myself included. Let me know in the comments section below or on the Best Buy CAPS page if you agree this dog is just riddled with fleas.

And the dumbest
Although not on par with the ham-fisted clumsiness of Best Buy, pharmacy chain Walgreen (NYSE: WAG  ) is also adept at shooting itself in the foot, most infamously by