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.
|
Underdog |
Company |
CAPS Rating (out of 5) |
|
|---|---|---|---|
|
98.29 |
China Security & Surveillance Technology |
***** |
|
|
99.27 |
Energy Conversion Devices |
*** |
|
|
99.64 |
Medifast |
** |
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
When investing legends focus on a stock, it's natural to want to piggyback on their decisions. George Soros is a controversial figure because of his politics, but no one argues with his investing acumen. That he believes China represents the investment opportunity of a lifetime, and singles out China Security & Surveillance Technology specifically as a company he thinks ripe for the picking, has investors sitting up and taking notice.
The security envelope we saw develop during the Beijing Olympics is likely to be even tighter at this year's World's Fair in Shanghai. China's "Safe Cities" project encompasses 660 cities and is part of a larger initiative called the Golden Shield that uses technology to monitor, censor, and otherwise contain its citizens. Google
CAPS member Walker6464 sardonically notes that China Security & Surveillance would be a great investment, if only the country's government showed some interest on keeping an eye on its citizens. Almost 99% of CAPS members rating the surveillance equipment manufacturer apparently agree, as they've rated the company to outperform the market's broader averages. Feel free to weigh in yourself on the China Security & Surveillance Technology CAPS page.
It's got the stones to succeed
Back in December Energy Conversion Devices gave hope to investors it would be able to weather the changing dynamics in the solar industry by signing new deals. Despite an inventory glut, plummeting prices, and lower governments subsidies ECD was able to sign onto a project providing three megawatts of power of its thin-film panels to two Coca-Cola
Despite being one of the first countries to cut its subsidies, analysts were looking to Spain for growth this year. But now people are saying the government might cut solar subsidies another 40% as it seeks to rein in its financial troubles. With silicon prices so low, ECD's cost benefits may no longer outweigh those of Chinese producers like Trina Solar
CAPS member Paramnesia1930 sees little in the broader economy occurring that will help ECD out of its hole:
Depressed job market, debt laden consumers, rising tax burdens, corporate real estate, credit card defaults, and especially housing starts. The latter typically leads normal recoveries.
The germ of an idea
The constant barrage of negative press by critics -- and the silly decision by Medifast's management to address them -- finally caught up with the stock and saw its value plunge by more than half earlier this year. The diet product maker has recovered some lost ground since then, and a strong earnings report has helped soften the blow that it was alleged to be operating little more than a glorified pyramid scheme.
CAPS member Marune says it was erroneous allegations, not business operations, that drove the price down, meaning it still has a lot of room to run:
The fraud investigation drove the price down far more than any market factors. Now that the investigation has been canceled, the price will rise accordingly.
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.
