These 5 Underdogs Are No Dogs

Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest guys in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.

On Motley Fool CAPS, we've also got leading analysts who find the chinks in a company's armor and correctly call its fall. Our "Underdogs" have earned 100 or more CAPS points by 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. Instead of studying more of their pessimistic picks, we'll focus on the stocks these top members expect will outperform the market. If these CAPS investors have scored big by correctly predicting which stocks will fail, it may be worth our while to see which others they think will succeed.

Not every short sale goes as planned, making shorting a risky proposition. 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 -- just the launching pad for further research.

Underdogs still wag their tails
Even though LDK Solar's new 15,000-metric-ton polysilicon plant recently began production, investors would be wise to view the sudden resignation of the company's senior VP for manufacturing warily. After all, he was one of the chief architects for bringing the facility online, and LDK says he'll continue to offer advice as it ramps up production. Providing the tried-and-true "leaving for personal reasons" excuse, though, is often the hallmark of deeper problems, even if there's no indication right now that anything is amiss. Regardless, it's tough to ignore the declining operational efficiency, as CAPS member acts412 points out:

First Call says sell. 3 negative earnings surprises. earning are going backwards. negative independent ratings. eps being revised downwards. huge and growing debt. wall street is selling. when are they gonna make money?

Stuck at STEC
When you look at the competing visions for Advanced Micro Devices (NYSE:AMD) and Intel (NASDAQ:INTC) for the PC industry, you might see an indication of how each expects to perform over the next year. AMD has suggested that business may grow a bit more moderately than what might be seasonally anticipated, as PC manufacturers may have overbuilt for the release of Windows 7. They say they're waiting for consumption to catch up with supply before getting too optimistic.

Increased competitive pressures have been holding STEC shares down, despite the strong support its ZeusIOPS drive has been enjoying in the market. AllStarPortfolio, however, likes STEC for several reasons:

Stec has continued to improve the performance and reliability of SSD (Solid State Disk Drives) and build its customer base. Deemed too expensive by some, the performance and reliability of SSD drives still make them a good fit for front end applications. As the cost drops they will be used in more storage intensive applications and eventually desktops and laptops.

Profits will drive more competition to the niche, but with its leading position in the field, STEC might hold a first-mover advantage that Intel or AMD's size and power won't be able to sufficiently overcome.

There's no need to fear ...
Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. 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.