These 5 Underdogs Are No Dogs

Short-sellers and hedge fund operators, 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. Theirs is not the most popular way to go, but rewards can be quite lucrative.

On Motley Fool CAPS, we have 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 been called.

Not every short sale goes as planned, so going short is risky. 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 the launching pad for further research.

Underdogs still wag their tails
We've all heard the saying, "Fool me once, shame on you; fool me twice, shame on me." But what do you say when someone willingly wants the wool pulled over his or her eyes?

The banks had little choice last year when Treasury Secretary Hank Paulson forced TARP money onto their balance sheets. Whether the banks were sick or healthy, and whether they wanted the money or not, the fear and panic that Washington was operating under at the time caused the folks in Washington to make all of the big banks accept the cash, lest the truly poor operators stand out from the rest.

Now Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) are just two of quite a few banks that can't wait to get out from under the strictures that "accepting" TARP money imposed on them. Pay caps are supposedly causing talent to flee, and that's only one of the more visible signs that the policy was always a mess that failed to grasp the full consequences of its actions.

And now we have current Treasury Secretary Tim Geithner saying that insurance companies are eligible for $22 billion in TARP funds -- but after a long wait, many are saying "Thanks, but no thanks!" Allstate (NYSE:ALL), Ameriprise Financial, and Prudential Financial are running away from the cash. Hartford Financial, meanwhile, is still weighing its options as it stands in line to accept $3.4 billion in TARP funds, while Lincoln National stands in the background with its hand out for $2.5 billion in financing. Both companies are currently reviewing the final terms of accepting TARP money before signing on any dotted line.

CAPS member ruinas felt at the start of the month that now was a good time to invest in the financials, including Hartford, assuming that the sector's largest components didn't fail the "stress test." Of course, a number of analysts viewed the test with skepticism and believe its purpose was to instill confidence in the banking system -- which it has apparently done for the time being.

Ratings agency Moody's, at least, thinks the TARP infusion pushes Hartford back from the edge and gives it added flexibility, though it admits that by accepting the money, the company will take on political risk. Even so, back in March, rodvold looked more toward Hartford's historical ability to come through, in suggesting that it will be stronger in the future.

After this banking/insurance cluster, Hartford has seemed to not headline themselves like the "other" companies. After all of this, they remain a top 30 Titan in the DJ Insurance Index. Last year their shares were selling at $60, and around $95 the year before. It was a steady grower for the last decade. ... Insurance companies can go bankrupt, but insurance itself never will. I think Hartford didn't take as heavy a blow as the others and will come out a stronger contender to its competition. [Especially] with their good history performance and predicted earnings and revenue for the next couple years. I'll buy it.

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 you're 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 to CAPS than you might think.