These 5 Underdogs Are No Dogs

Short-sellers and hedge funds -- often one and the same -- have been getting a lot of scrutiny lately for their bearish market calls. Although they mostly prefer to work in the shadows, some, like Greenlight Capital, have occasionally taken highly public stances on companies they think are poised to fall.

Sometimes lauded, 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 most companies and markets. It's a tough position to take, but the rewards can be rich indeed.

On Motley Fool CAPS, we've got our own brand of leading analysts who've found the chinks in a company's armor and correctly called its fall. Underdogs are investors who have earned 100 or more points on CAPS by correctly predicting that a stock would underperform the market.

Today we'll 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 identifying those with upside potential. We'll examine some of the most recent picks of the Underdogs, for better or worse.

Not every short sale goes as planned, so it's a risky position to hold. Stock prices can be irrational longer than you can afford to stay in the game. Thus, we don't recommend you use this as a list of stocks to sell or buy -- just the launching pad for further research.

Bank on this
Banking interests have had a hopeful run over the past few trading days, since the Fed and Treasury announced their plans to save the country's banking system. Whether those plans actually work is another matter, but the government agencies will look like geniuses if the banks themselves continue to report results that beat expectations.

With Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) most recently beating analysts' predictions, all eyes will turn to Wachovia tomorrow, to see whether it can keep the past few days' string of relative wins going.

CAPS member Harry0925 doubts it will, believing that the bank holds a precarious financial position:

It is a great franchise and I could get crushed by short covering, but I am really worried about this one. They have a $120B Pick-a-pay mortgage portfolio they bought at the height of the bubble, versus just $32B of tangible capital. The portfolio has just 4% of reserves against it but 14% of the portfolio has an LTV over 100%. CRE and credit cards are deteriorating as well. They are going to have to raise capital and cut the dividend. I think eventually, Wells Fargo does a take-under at $4-7 per share.

Sun rising on Hoku?
A polysilicon provider for the red-hot solar industry, Hoku Scientific finds itself without a home after selling its headquarters for $6 million. As it searches for new digs, the company reported that it met its own quarterly expectations for revenue, and it expects to do the same for the full year.

Yet Hoku's history is full of delayed gratification for investors. Some might have first gotten into the company as a fuel cell developer, only to discover that the company had quit that business. Others might have invested in Hoku's next incarnation as a manufacturer of solar modules -- for all three months before the company changed its mind and quit that business. While its built-up polysilicon supply was originally intended for its own solar panels, Hoku's now announced intentions to sell that backlog to third parties. We'll have to wait and see how that pans out.

Back in May, CAPS member ImmortalThanos wondered whether Hoku's supposed long-term contracts will ever pan out. Considering the zippy pace with which the company changes gears, it might be fair to ask how "long term" a contract truly is:

I don't see how Hoku can keep weathering years of not making a decent profit, soley based on future "long term contracts" that may never happen. They seem to be putting all their eggs into the Alternative Energy basket. While doing so may be ethical, it certainly is not profitable.

There's no need to fear...
Some underdogs reveal their best when their backs are against the wall. 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 on over to Motley Fool CAPS, where your opinion can still save the day.