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. Like baseball's greatest place hitter, "Wee Willie" Keeler, great contrarian investors such as Benjamin Graham, Warren Buffett, and John Neff "hit 'em where they ain't."
Today's new breed of contrarian investor is at Motley Fool CAPS, where savvy Fools are willing to see both the upside and downside of a stock. Although 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:
|
Company |
CAPS Rating (Out of 5) |
Skeptic |
Player Rating |
|---|---|---|---|
|
Crystallex (AMEX: KRY) |
*** |
madnessmmmrs |
99.97 |
|
Transocean (NYSE: RIG) |
***** |
mckx00 |
99.71 |
|
Golden Star Resources (AMEX: GSS) |
***** |
mickeyc21 |
98.60 |
|
Amazon.com (Nasdaq: AMZN) |
** |
iseekbigbaggers |
94.07 |
|
Thornburg Mortgage (NYSE: TMA) |
* |
tcampbellla |
91.57 |
Just as a list of their worst stocks would not be a list of stocks to short, the skeptics' favorites here aren't automatic buys. But they do offer an excellent starting place for your own future research.
Skeptically skeptical
Call it being conservative in a risky business, but Thornburg Mortgage has made a good living from crafting jumbo mortgages -- loans too big to sell to Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) -- for wealthy individuals who can handle a big monthly hit more easily than your typical subprime borrower can.
Thornburg's problem is that it's having trouble bundling these mortgages into securities that investors are willing to buy. As the housing and mortgage markets became roiled, the appetite that investors once held for these riskier securities has dried up. The investment thesis for Thornburg, along with its share price, shriveled.
However, Federal Reserve Chairman Ben Bernanke, who earned the nickname "Helicopter Ben" for his willingness to spill money out of helicopters to fight deflation, has seemingly been mobilizing the entire Air National Guard these days to open liquidity in the capital markets. That could be a light at the end of the tunnel for Thornburg, if investors once again get an appetite for mortgage-backed securities. Thornburg's stock has responded positively and caused investors to do a double-double take.
Planting the seeds for growth
Tight capital markets and recessions aside, some CAPS investors think Thornburg's mortgage assets are not as worthless as the market thought. Says 7dogs:
I think the rescue efforts by the government have a shot at rescuing this over leveraged mortgage company. The difference between [Thornburg's] holdings and Bear Stearns holdings can be found in the [quantity] of subprime loans. The bottom line is I don't believe the loans are worthless regardless of lack of liquidity.
Without even the least trace of irony, it was only a few days ago that Bear Stearns upgraded Thornburg's stock. CAPS player Mhodge44 endorsed Bear's view: "With Bear Stearns upping the call to peer perform the stocks jumped over 100% in a day. I think the mortgage mess will start cleaning up a little with the Feds having put so much money into backing these mortgage companies and this is one of the companies that will reap the benefits."
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. What's your forecast? Drop by CAPS, and tell us which stocks are your favorite contrarian picks.
