These 5 Underdogs Are No Dogs

Short-sellers and hedge funds, although sometimes shadowy, are often seen as the smartest investors in the room. They did their homework and will 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 one or more stocks would underperform the market.

Let's look at some of the recent calls these All-Star investors have made.

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

Underdogs still wag their tails
Morgan Stanley seems to have receded from the headlines for the most part as a financial basket case teetering on the edge of bankruptcy, after a significant cash infusion by Mitsubishi UFJ. Yet that could be because there are financial institutions that are in even worse shape, but that isn't really saying much. As the financial crisis has widened around the globe, Morgan, like Goldman Sachs (NYSE:GS), may still face hefty writedowns and loss provisions when it reports earnings for the quarter, and Mitsubishi finds itself having to raise cash in the face of continuing losses at the investment house.

CAPS member quipo16 last week opined that a little more time is necessary for the uncertainty surrounding Morgan Stanley and the markets to pass before it begins a relentless climb back north. Only time will tell if this prediction is right:

Trading at 4x expected PE. Average over the last five years is 13x PE. Once the uncertainty of next year begins to fall away the stock should start to head back toward $30.

Also pulling up under the banner of uncertainty is Altria, which received approval last week from UST (NYSE:UST) shareholders to buy out the smokeless-tobacco firm. The $10 billion merger is expected to close in January. Some All-Star CAPS members, like DemonDoug, feel it is too high-priced.

InterOil looks determined to put doubts about its abilities to rest. CAPS member kencooksam thinks several potential drivers could kick in before year's end to push the natural gas producer higher:

[InterOil] has found 8-12T's of [natural gas (NG)] and has barely started drilling their 8.5 mill acres. Others have run third party verifications and have invested ie T Boone Pickens, [Merrill Lynch] signed to handle the LNG plant financing, the [Papua New Guinea (PNG)] govt bought into the exploration rights. ...

The current price only reflects the value of their ONG refinery. The other NG finder on PNG OIl Search just recieved $1.6 Billion to build their LNG plant on the island. So worst case [Interoil] can monetize its assets with their LNG plant. More likely [Interoil] will build its own plant..2014 open projected for the LNG plant.

There's no need to fear ...
When underdogs have their backs against the wall, that's when they can pull on their hero capes. But it takes more than a few All-Star picks and a quick paragraph or two to make buy or sell decisions. So start your own research on these stocks on Motley Fool CAPS. While there, you can 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.