When it comes to investing in the stock market, it pays to be skeptical. Not only should you not believe everything the analysts tell you, but you'll also often have to discount what the companies tell you.

Going against the crowd can pay off handsomely. Some of the market's legendary investors have been contrarians: Benjamin Graham, Warren Buffett, John Neff, and Marty Whitman, among others. Like baseball's greatest place hitter, "Wee Willie" Keeler, contrarians "hit 'em where they ain't."

When the crowd abhors a stock, a contrarian wants a closer look. Similarly, when the masses clamor for that ticker, the skeptical thinker believes it's time to move on.

A new breed of contrarian
Today, I'm looking at a new breed of contrarian: the Motley Fool CAPS "skeptic." Skeptics don't think like most investors. They're willing to see the downside potential of a stock, along with the upside. CAPS skeptics have rated more stocks as underperforming the market than outperforming it. They're contrarian in that they find more downside potential than upside, but being a top-rated CAPS player means they're right far more often than not. When they mark a stock to outperform, perhaps we ought to take notice.

Here are some recent picks from five Foolish CAPS skeptics:


CAPS Rating


Player Rating

Jinpan International (NYSE:JST)








Altria (NYSE:MO)




Countrywide Financial (NYSE:CFC)




E-Trade Financial (NASDAQ:ETFC)




The stocks above are not automatic buys. Just as a list of these players' worst stocks would not be a list of stocks to short, this list of their favorites requires further due diligence. But it's a place to start.

Trading financial security
A few worthless asset-backed securities in your portfolio, a mildly scathing analyst what-if scenario, and kapow! Your stock is hit in the solar plexus for a 60% loss in a single day. It's enough to make you wonder whether your broker is bankrupt. E*Trade's rivals optionsXpress (NASDAQ:OXPS), TD AMERITRADE (NASDAQ:AMTD), and Zecco.com may be monkeying around with the beleaguered brokerage's customers, but CAPS investors generally believe it's too sound, its customers too well-protected with insurance, and its sell-off too overdone to bring the discount broker down.

CAPS investor rajeevg gives a reasoned look at E-Trade's finances. While acknowledging the risk that its customer accounts may flee toward competitors, he sees a better price in the future:

I estimate that E*Trade's brokerage business is worth 6-7 billion dollars conservatively. E*Trade bank holds some risky ABS and 12 billion dollars of dubious home equity loans. I estimate that this might bring down ETFC's value by as much as 2 billion dollars. These numbers imply that the stock should be worth between $9.4 and $11.8 per share.

The big risk here is that there is a major flight of investor assets from E*Trade forcing E*Trade to sell assets at a discount or raise capital at very unfavorable terms. But given that the stock is trading under $5, I think there is enough margin of safety to allow for this possibility. I expect the stock to trade at a more reasonable level once there is more clarity about the balance sheet.

CAPS All-Star PsychoDr ,with a 91.39 player rating, echoes that view. The good doctor considers E*Trade's underlying business just too strong for the price at which it's being offered. At worst, a buyout could always save the day:

Im just getting tired of all the panic in the market today. Someone from CITI comes out and suggests that Etrade is going bankrupt, and the stock drops 60%. Isn't Citi in huge trouble? I am in on this one, and am doing so after the major run-up the past two days. Not because I am a gambler, but because this company is on solid ground. Of all the CDO mess, Etrade is not the first in line. 4.7 million customers, a bulk of their cashflow is made on their trading account, and despite what the crack analyst (pun intended) had to say, a small amount of their mortgage portfolio is below AA. They get through this without a serious problem because of their ability to generate cash flow. If not, they will be targeted by another brokerage. Either way, we are in the teens by March....Then i will decide how much longer I want to stick around.

Seeing past the obvious
Contrarians try to see past the headlines. They know that just beyond the wrack and ruin of the storm clouds lies a shimmering morning. Conversely, the sun can't shine forever, though the crowds may think the green grass and blue skies go on and on. In the meantime, drop by CAPS and tell us which stocks are your favorite contrarian picks.

optionsXpress is a recommendation of Motley Fool Stock Advisor. Even a skeptic could love our free 30-day trials.

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. No one doubts the Motley Fool's disclosure policy.