These 5 Underdogs Are No Dogs

Short-sellers and hedge funds, though sometimes shadowy, are also 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 have our own brand of 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 from these All-Star investors. 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, making it 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
You'd expect that with the demise of Circuit City, Best Buy would gain market share. Yet even with one fewer rival, the electronics retailer registered a 15% decline in profits for its latest quarter, as same-store sales dropped 4.9% from a year ago. But does its foray into selling electric vehicles signal a new growth phase or the fact that it's grasping at straws?

In a 19-store test on the West Coast, Best Buy will begin selling electric scooters, bicycles, motorcycles, and even Segways. If it's successful, it might just roll out the products to more stores. Although the electric-motorcycle maker told The Wall Street Journal that the bikes are "really consumer electronics you ride," they're still a long way from the TVs, PCs, and game consoles that make up the bulk of Best Buy's sales.

Some investors might not be sold on the idea. Because traditional electronic fare will still generate the bulk of its revenues, macroeconomic factors will continue to affect Best Buy's results. CAPS member sett0047 is worried about several trends:

While [Best Buy] does seem to be holding up fairly well in light of difficult retail market conditions, here are just a few factors that will more than offset any market share gains over the next 12-24 months:

(1) obviously, less attractive financing offers and less credit available overall;

(2) wireless appliances and digital delivery - why spend $000's on cable, components, and accessories when all my content is delivered over broadband or satellite and accessible by PC, wireless network, or iPod; and

(3) Cloud computing-imagine what happens to PC sales when operating systems and software never become outdated.

Now, these changes won't happen over night...or maybe not even before the 2009 holiday shopping season. But, this day will come [sooner] than one might expect. Given the company's latest product introduction (battery-operated scooters), management seems to agree.

No fleas here
Because it locks in contracts for longer periods of time, dry bulk shipper Paragon Shipping has been able to avoid much of the vagaries the dayrate spot market brings and was able to report a profit earlier this year. Yet it's a dual-edged sword: Dayrates are starting to recover, meaning shippers that are most exposed to the spot market, such as DryShips (NASDAQ:DRYS) and Excel Maritime (NYSE:EXM), are more likely to beat earnings estimates when they report over the next few weeks.

cibient isn't a fan of the debt load shipping companies in general are required to carry, but Paragon's contracts smooth out the bumps:

I hate shippers' debt loads in general, but this one seems to have a rational payout ratio coupled with the steady stream of long-term contracts.

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. 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.