These 5 Underdogs Are No Dogs

Short-sellers and hedge funds, though sometimes shadowy, are sometimes seen as the smartest guys 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 that 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 operators don't always go short, we're going to look at recent Underdog picks no matter which way they've called them.

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, but rather as a launching pad for further research.

Underdogs still wag their tails
Companies reliant upon commodities often try to hedge their costs by buying in bulk when they think today's costs will be lower than in the future. Sometimes -- like last summer, when airlines had locked themselves into oil futures contracts only to see the price plummet afterwards – the practice bites them, but they can reap significant savings when it works out.

Similarly, the oil companies can realize generous profits when oil prices are in contango, which is when the current spot price is cheaper than the price for future delivery. They'll buy the spot oil, lease tankers to store it, then immediately turn around and sell it for future delivery when it will be more expensive. Even though energy prices have begun rising once again, thus shrinking the contango discrepancy, the amount of oil being stored has not changed all that much. Frontline estimates there is still as much as 80 million barrels being stored at sea.

That might help Frontline's bottom line for the time being, because the more tankers that are used to store oil, the less there will be available to transport it, which will help prop up lease rates that have closed in on its breakeven rate. During 2008, very large crude carrier (VLCC) rates peaked around July at about $175,000 a day, where a year earlier they were below $40,000 per day. That helped Frontline (the largest supertanker company), Teekay (NYSE:TK), and Tsakos Energy Navigation (NYSE:TNP) to post generous profits, at least during the first half of the year. But this year, rates have fallen as consumer demand waned, and with new VLCCs coming onto the market, there is a greater supply of tankers than might be justified by current conditions.

With market conditions as they are, it's easy to see why the analysts at Credit Suisse think Frontline will underperform the market, but the top dogs of the CAPS community would beg to disagree, as they continue to rate the tanker firm at four stars out of five. Members like chilstad2 find Frontline's CEO to be a tenacious scrapper. Meanwhile, MaherDaddy views the company as a best-of-breed cash cow:

Tons of cash, the best of the oil shippers, China's demand is still growing for oil, and sometimes they get paid just to store it until the demand continues...cash cow with growth to boot.

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.