Short-sellers and hedge funds, though 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. Yet, just as hedge fund managers don't always go short, we're going to look at recent Underdog picks no matter which way they've called them.


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CAPS Rating (5 max)




Chipotle Mexican Grill (NYSE:CMG)





Centex (NYSE:CTX)





Fastenal (NASDAQ:FAST)





Gilead Sciences (NASDAQ:GILD)





Baker Hughes (NYSE:BHI)



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
Economic hard times are causing people to eat at home more than in restaurants, a fact reflected in the National Restaurant Association's forecast that overall dining sales will decline by 1% on an inflation-adjusted basis in 2009. Yet the burden doesn't fall equally across all styles of dining: Quick-service spots like McDonald's (NYSE:MCD) should handily outperform full-service fare.

Chipotle Mexican Grill falls into a more midlevel of fast-casual, and top-rated CAPS All-Star TMFPlatoish notes that patient investors have been rewarded by getting this high-quality, fast-food purveyor at a reasonable valuation:

Patience is rewarded. Finally was able to get this business at a nice price. I've watched it for a long time and have admired its management team and operating model. Excellent business with room to grow and what seems to be a cult-like customer base. It serves decent Mexican food and is remarkably consistent across geographies.

It is not recession proof, but is in the fast food end of the spectrum and not really an expensive ticket. High school and college kids still need their burritos. They seem to be starting an effort to soften up Europe and build brand recognition for future expansion. Being co-sponsor of the Garmin-Chipotle bike racing team is a good beginning to this effort.

A foundation of shifting sands
With commercial builders like General Growth Properties (NYSE:GGP) on the verge of collapse, the country's biggest developers are the next in line to hit up taxpayers for a bailout. Apparently there's no industry that's not too big to fail, and industry trade groups are buttonholing Congress to let their pigs feed at the trough.

Perhaps homebuilders should try that tact, too. Centex is just one of a number of builders getting crushed by housing's decline as buyers wait for prices to fall further -- assuming they're even able to get approved for a mortgage. A bailout also might answer the question posed by CAPS All-Star socalsy of how Centex will be able to pay its bills when there's already too many houses:

Cash and Receivables = $1.65MM

Accounts Payable [plus Accrued Liabilities]= $1.84MM

(That's not the kind of cash position you want to be in).

Long term debt = $3.4MM

If you're a construction company, how do you pay off debt when you're losing money, you don't have the cash to pay the bills, and there's already a glut of housing?

There's no need to fear ...
When underdogs have their backs against the wall, that's when they can shine their brightest, but it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. So start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. 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. 

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Chipotle Mexican Grill is a Motley Fool Hidden Gems selection as well as a Rule Breakers pick. The Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.