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 investors 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 operators don't always go short, we're going to look at recent Underdog picks no matter which way they've called them.

Underdog

Member Rating

Company

CAPS Rating (out of 5 max)

Call

msIRA

99.86

Ethan Allen Interiors (NYSE:ETH)

*

Outperform

jmt587

99.84

D.R. Horton (NYSE:DHI)

*

Underperform

wiiz

99.82

Caterpillar (NYSE:CAT)

****

Outperform

oldvolvoguy

99.81

Sequenom (NASDAQ:SQNM)

***

Outperform

MLG100

99.66

First Horizon National (NYSE:FHN)

*

Underperform

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 the launching pad for further research.

Underdogs still wag their tails
Despite all the talk of "green shoots" -- the new catchphrase -- heavy equipment manufacturer Caterpillar gave us an earnings report showing a painful quarter and a bleak future. Add the dire warnings from other bellwethers, and the green shoots are quickly turning brown.

Large crane maker Manitowoc (NYSE:MTW), for example, managed to beat expectations, but that could be because analysts were especially pessimistic with their forecasts. Predicting the end of the world but finding it to be something less apparently leads Wall Street to suspect green shoots are cracking through the permafrost. Where's the recovery? In a follow-up report, Deere (NYSE:DE) said its profits fell by 38% and that earnings for the year would only be $1.1 billion, down from the $1.5 billion from its previous guidance. It's suffering from lower prices for farm commodities, credit markets that remain tight, and the worldwide recession. That mix is leading to lower sales of farm tractors and equipment, particularly abroad.

Global economies continue to contract along with the U.S., though we're looking like a powerhouse because our declines were less than what we've been experiencing. U.S. gross domestic product declined 6.1% in the first quarter, according to the Bureau of Economic Analysis, but that was better than the 6.9% decline in the fourth quarter.

In contrast, Euro-zone GDP fell 2.5% in the first quarter -- worse than the 2.2% drop economists had expected and far below the 1.6% it experienced in the fourth quarter of 2008. Asia is worse off. Hong Kong was down 7.8%, its worst performance since the depths of the Asian financial crisis in 1998, while Japan recorded its worst decline since it began recording statistics 54 years ago -- 15.2% in the first quarter.

Caterpillar is looking for a recovery. Having hosted President Obama as he pushed for massive spending initiatives, officials for the heavy equipment manufacturer expressed disappointment that there wasn't actually more for infrastructure projects that could have been used to prop up results.

Such outlooks have some investors looking for further declines in share prices, despite Caterpillar already being down 55% over the past year. CAPS member TrojanFan says we're not out of the woods yet as hopes for a hockey-stick recovery fade.

The recent run up in this stock is overdone as is the optimism for a V-shaped recovery in housing which would seem to be requisite to justify the current price.

There is a strong likelihood that the company will cut the common dividend later this year and that will have an adverse impact on the stock price when it happens as this outcome is not fully priced into the stock price.

Furthermore the company's growing debt load is concerning as are the tax proposals before [Congress] regarding the taxation of foreign profits for US multinationals. Both the debt and uncertainty surrounding US tax policy going forward are really going to hamper the financial flexibility of this firm in the very near-term.

To put the debt burden in perspective, the company's operating margin last quarter was insufficient to even cover the interest expense for the period and their sequential quarterly revenue continues to shrink. They have already cut-out share buybacks and the dividend will be the next to go.

There's no need to fear ...
When underdogs have their backs against the wall, 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. 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.

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. The Motley Fool has a stress-free disclosure policy.