Short-sellers and hedge funds -- often one and the same -- have been getting a lot of scrutiny lately because of their bearish market calls. Although they mostly prefer to work in the shadows, some, like Greenlight Capital, have on occasion taken quite public stances on companies they think are poised to fall.
Sometimes lauded, but more often reviled by the public at large, short-sellers are often seen as the smartest guys in the room. They've done their homework and are willing to bet their capital against the seemingly inexorable rise of companies and markets. It's a tough position to take, but the rewards can be quite lucrative.
On Motley Fool CAPS, we've got our own brand of leading analysts, who have found the chinks in a company's armor and have correctly called a stock's fall. "Underdogs" are investors who have earned 100 or more points on CAPS by correctly predicting that a stock would underperform the market.
We're going to take a look at some of the All-Star investors who've achieved this distinguished ranking. Knowing which stocks hold downside risk is just as important as knowing those that have upside potential. Yet, just as hedge fund operators don't always go short, we're going to look at some of the most recent picks of the Underdogs, no matter which way they've called them.
|
Underdog |
Player Rating |
Company |
CAPS Rating (5 max) |
Call |
|---|---|---|---|---|
|
100.00 |
Aircastle |
*** |
Underperform |
|
|
99.99 |
United Parcel Service |
** |
Underperform |
|
|
99.99 |
Nam Tai Electronics |
***** |
Outperform |
|
|
99.98 |
Alcoa |
**** |
Outperform |
|
|
99.97 |
Capstone Turbine |
*** |
Underperform |
Not every short sale goes as planned, so it's a risky position to hold. Stock prices can be irrational longer than you can keep money in the game. So we don't recommend you use this as a list of stocks to sell or buy, but rather as the launching pad for further research.
Castles in the sky
It would seem that the same dynamics that have driven airlines to the brink of bankruptcy (if not into it) would have the same impact on airplane leasing companies like Aircastle or rivals like Genesis Lease
Their fleet alone is worth almost triple the market cap. The company isn't going to liquidate an promises to return piles of cash to shareholders well over what the current market cap suggests.
The cut in the dividend was because the company wanted to preserve capital to take advantage of firesales of planes that would come up in these times of distress. The CEO is a former high up at GECAS which is one of the largest players in the industry.
Not tilting at windmills
Capstone Turbine manufactures microturbines that produce power on-site, either as a stand-alone source of power or in conjunction with traditional energy sources. Capstone's small microturbines can produce enough electricity to power a convenience store. The company also makes several large models, and it recently unveiled the first megawatt microturbine. Because the turbines can run on a variety of fuels, they can be a low-emissions form of energy production. And they need little maintenance, because they require no lubrication.
Although the clean efficiency of the microturbines is attracting a number of CAPS investors, others, like ZeroSignal, are concerned about the continuing losses Capstone produces:
Beware of cheap stocks...they deserve to be cheap for a reason more often then [not]. This is a money loser since the beginning, only propped up by increased demand for alternative energy stocks. As it continues to bleed money, people will change their mind, and we're back down to around $1 a share.
There's no need to fear ...
When underdogs have their backs against the wall, sometimes they can shine their brightest. These CAPS Underdogs have been doing brilliantly with their calls so far, but we haven't yet heard from you. Don your superhero cape and head over to Motley Fool CAPS, where your opinion can save the day.
