These 5 Underdogs Are No Dogs

Short-sellers and hedge funds, though sometimes shadowy, are often seen as the smartest guys in the room. They've done their homework, and they'll bet their capital against the crowd. It's not the most popular way to go, but the rewards can be quite lucrative.

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

Let's look at some of the recent calls these All-Star investors have made. And since hedge fund operators don't always go short, we'll look at recent Underdog picks whether they're positive or negative.

Source: Motley Fool CAPS.

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

Underdogs still wag their tails
As taxpayers wait to see how much it will cost them to bail out mortgage giants Freddie Mac and Fannie Mae (NYSE:FNM), investors await a decision that could wipe them out completely. Any form of nationalization of the mortgage backers would effectively destroy what little value they still hold. Interestingly, not everyone thinks the Great Implosion is a sure thing, but at least some CAPS All-Stars like MLGtrader realize it's little more than a crapshoot at this point:

Instead of going to the casino this weekend, put a few hundred in FRE. I did it, everyone else is doing it. Sit at your computer and watch the ticks up and down. It is better than the casino slot machines. The best part is that instead of fighting the casino to make money, you get to fight the government... C'mon, big money, big money.

The financial guaranty insurer subsidary of XL Capital (NYSE:XL), which recently changed its name to Syncora Holdings, is suffering from the same conditions infecting Freddie and Fannie, yet it doesn't have a sugar daddy like the U.S. taxpayer to turn to. Operating losses in the quarter amounted to $1.3 billion, compared to a profit of $46 million last year, causing the CEO to step down. Some top-rated CAPS All-Star members like anchak see it as a good bankruptcy candidate:

Well....This is a Bankruptcy pick.....The only valuation left on the book are I guess the cash assets/eqvts....but Equityholders have no right whatsoever-They have a shocking Negative Equity Carry Balance-They are hanging on by the last thread-I guess XL wants to salvage something from their stake-which they are moving to a trust-If you want to short this in real life-maybe worthwhile to understand that transaction.

With high fuel costs and crummy economic conditions crimping even teens' ability to spend dough, many youth-focused retailers like Abercrombie & Fitch have seen sales wither. Although it's a tough retail environment right now, top CAPS All-Star TMFSarahGen finds the time right to go shopping for stocks:

Back to school again! Time for some overpriced jeans and some shirts no one needs. Insanely low debt, and a great brand make [Abercrombie] a natural pick for outperform anytime, but even better this time of year.

Gtrinvestor thinks it may be time to load up once again on the yo-yo shares of private student loan originator First Marblehead: "Re-load on this one, but here was my original pitch, before the big fall, then run-up, and then fall again (but still net positive to my score when I closed-out). LT, I still think this one will make it, but the road will certainly be bumpy and full of some risk."

There's no need to fear...
Underdogs often shine brightest when their backs are against the wall, and it can pay to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Then don your superhero cape and head on over to Motley Fool CAPS, where your opinion can still save the day.