Short-sellers and hedge funds, though sometimes shadowy, are sometimes considered the smartest guys in the room. They did their homework and will bet their capital against the crowd. It's not the most popular way to go, but the rewards can be quite lucrative.

On Motley Fool CAPS, we've got our own brand of leading analysts who found the chinks in a company's armor and correctly called its fall. "Underdogs" are investors who earned 100 or more CAPS points 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. Just as hedge fund operators don't always go short, we'll examine recent Underdog picks no matter which way their CAPS thumb is pointing.


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CAPS Rating (5 stars max.)




Raytheon (NYSE:RTN)





US Bancorp (NYSE:USB)





Ford (NYSE:F)





State Street (NYSE:STT)








Not every short sale goes as planned, making shorts a risky position to hold. 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
Auto-industry losses are mounting not only in Detroit, but also in Japan. Toyota (NYSE:TM) now expects to post a $5 billion shortfall, its first operating loss in 50 years. In that light, Ford actually looks like it may survive as the healthiest U.S. carmaker, with a Fusion hybrid that could challenge the supremacy of its foreign rivals.

Despite a worsening sales picture, Ford has still sworn off government assistance to get it through this period. The company believes it will regain its long-ago position as the viable engine of the automotive industry. CAPS member Rasbold readily agrees, lauding the iconic car company as the epitome of the American can-do spirit:

Ford will be the one to rise from the ashes of the US Auto industry. Nothing says American spirit and industrial revolution like a Ford. Go Blue!

State Street: roadkill?
Investors tossed institutional money manager State Street out into the street after it reported that earnings fell 71% in the fourth quarter. Unrealized mark-to-market losses in its asset-backed commercial paper swelled to $3.6 billion, more than double the $1.4 billion it had recorded just one quarter ago. State Street wasn't alone in this regard; the world's largest custody bank, Bank of New York Mellon (NYSE:BK), reported that its own net income plummeted 95% year over year.

CAPS member aldough scoffs at State Street's brave face in the aftermath of the announcement, noting that its promises of recovery are a common siren song:

$9 billion in unrealized losses. They really think these investments will come back? I've heard that too many times over the last year.

An enriching investment
To cynics, it's not surprising that President Obama once again waived his campaign pledge to reduce the influence of lobbyists in Washington by not letting them serve in his administration. Obama appointed a Raytheon lobbyist to be the second in command at the Defense Department, even though the defense contractor earned $17 billion in revenue from government contracts in 2007.

Even without having an alleged inside track overseeing the procurement process, CAPS All-Star BSHumphreyII felt Raytheon was already a strong contender, since weapons systems ought to be upgraded around the world:

Raytheon is easily the world leader in missiles, with a great portfolio of long-term contracts. Less will in the United States to deploy infantry overseas could mean a return to the Tomahawk diplomacy of old, and Raytheon is delivering a new generation of Tomahawks and other ground attack missiles. Also, international sales should be strong as our allies modernize their missile inventories. Software, sensors, and other electronics round out a strong, forward-looking defense contract business. Look for them to continue to grow earnings while a lot of business in a lot of other sectors contract through the recession. Raytheon has shown confidence in this with a $2 billion buyback announced last quarter.

There's no need to fear...
Underdogs shine brightest when their backs are to the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make serious buy or sell decisions. Start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. While there, you can 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.

US Bancorp is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.