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 often have to discount what the companies are telling you, too.
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. 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 to look more closely at it. Similarly, when the masses jump into one, 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, as well as 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. And some of these contrarians have parlayed their picks into top ratings.
But even the skeptics don't think every stock is headed for a tumble. Let's take a look and see what top-rated CAPS skeptics are recommending:
|
Company |
CAPS Rating |
Skeptic |
Player Rating |
|---|---|---|---|
|
RAIT Financial Trust |
*** |
StatsGeek |
100.00 |
|
Pfizer |
*** |
TDRH |
100.00 |
|
Bank of Nova Scotia |
**** |
luvb2b |
99.99 |
|
KongZhong |
**** |
nicvo |
99.98 |
|
Precision Drilling |
**** |
DemonDoug |
99.97 |
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 favorites requires a little more thinking and drilling down into the financial statements than that. But it's a place to start.
The pfiner points on Pfizer
One wouldn't have been surprised to find a skeptic questioning Pfizer's growth potential in the immediate future, let alone the more distant horizon. Lipitor is losing patent protection. The FDA is questioning the company's products. It's pulling Exubera from the shelves. What's a Pfizer investor to do? More to the point, what's a skeptic doing endorsing Pfizer?
Well, it's not like the Motley Fool Inside Value recommendation is standing around doing nothing. Not only did it pick up an old friend in Coley Pharmaceutical
In making his skeptic's pitch for Pfizer, TDRH notes that the 5% dividend it pays is worth collecting, while this otherwise fine pharmaceutical gets its act together:
Considered a value trap by many because of an "empty" pipeline. Still, company has a AAA credit rating, makes money, and pays a dividend. May be an attractive place for people to wait out a storm.
That view seems to be shared by 1Nf1DeL, who believes it will be Pfizer's pipeline that ultimately turns it around:
Pfizer faces the problem of patent expiration on 2 of [its] blockbuster drugs, especially Lipitor. This negativity is compounded by the fact that the drug meant to replace the revenue stream of Lipitor failed to make it through the Phase II trials. Indeed a blow for Pfizer. Considering this backdrop I am not surprised to see a shakeup in senior management.
Nevertheless, Pfizer is a top dog. It is a great company by all means and does not deserve such a pessimistic valuation. It has a fantastic history of paying dividends as well as a rock solid balance sheet. It also is far more efficient moving drugs from Phase II testing to clinical acceptance (increase of 70%)---ironically the most promising block buster replacement did not make it though---and the pipeline is as good as ever.
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, although the crowds may think the green grass and blue skies go on and on. Dodge the weather and come tell the 76,000 members of the CAPS community which stocks are your favorite contrarian picks.
