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.
|
Underdog |
Company |
Call |
||
|---|---|---|---|---|
|
100.00 |
Gilead Sciences |
**** |
Outperform |
|
|
100.00 |
General Motors |
* |
Underperform |
|
|
100.00 |
Cal-Maine Foods |
**** |
Outperform |
|
|
99.99 |
Pfizer |
**** |
Outperform |
|
|
99.98 |
McDonald's |
**** |
Outperform |
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 short or buy long, but rather as the launching pad for further research.
Underdogs still wag their tails
It's hard to argue with the sentiment that General Motors will underperform the market. Heck, when the president of the United States fires your CEO and essentially says bankruptcy is probably your best option, pulling off a comeback has got to rank right up there with walking on water.
There's little debate that the iconic automaker direly needed some tough love, but the debate over whether or not the beatdown it actually received was necessary will likely live on. On the one hand, going bankrupt will allow GM to get out from the heavy burden of its legacy costs, such as its expensive labor contracts and the mountains of debt that it shoulders. On the other, the fear that people won't buy a car from a bankrupt company runs rampant. For that reason, the Obama administration has said it will not only pay GM and Chrysler's accounts receivables, but will also provide some of their working capital needs for the next two months, and backstop all new car purchase warranties. Your future trips to the auto shop might not be serviced by Mr. Goodwrench, but rather by Mr. Green-Eyeshades from the U.S. Treasury.
Under normal circumstances, GM's woes would be a gain for Ford
But these aren't normal times. Once again, GM and Chrysler are getting a competitive advantage courtesy of the U.S. taxpayer. Just like when their financing arms were permitted to become "bank holding companies" and offer easier credit terms to customers, this so-called rescue puts the government in direct competition with Ford. It's tough to operate private enterprise when the government is working against you at every turn -- and has every incentive to ensure that its businesses succeed ahead of yours.
Even with the government backing its every move, predictions of GM's fate run the gamut from dour to fatalistic. CAPS member TMFGalagan just can't see how it won't all end badly for what was once the world's biggest carmaker:
I don't see how this emerges from its losses without bankruptcy or some hugely dilutive event as with [Fannie Mae / Freddie Mac]. Could bounce heavily, of course, but I still think that'd be temporary.
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. There's more than you think.
