These 3 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. However, today we're going to 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 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
As long as the FDA doesn't ask you to do new testing, its rejection of your drug is apparently an event worth celebrating. That's what Amylin Pharmaceuticals investors seemed to think as they bid up shares after the biopharmaceutical received a "complete response letter" from the regulatory agency for its once-a-week version of diabetes drug Byetta.

Amylin hopes lightning strikes twice after reporting quarterly sales for Byetta dropped 8% as Novo Nordisk (NYSE: NVO) introduced a competing treatment in the U.S. Amylin markets Byetta with Eli Lilly (NYSE: LLY), but after it was linked to acute pancreatitis, sales haven't been what they were, and the new competition isn't going to help.

Yet CAPS member NHWeston says the next wave of diabetes treatment will be the sort that Amylin has under development, though side effect risks do exist:

FDA is going to make Amylin do the dance - as they justifiable should, it's their JOB!! Nonetheless, long-term injectable insulins appear to be the next wave of diabetes treatment until a convenient, comfortable, pancreatic implant is developed, and Amylin is there.

I'm gonna be sick
Hospital operators Tenet Healthcare, Universal Health Services (NYSE: UHS), and others ought to remember to be careful what they wish for. Fitch Ratings says it won't take ratings actions right now on for-profit hospitals because operating performance won't be affected right away by the new health-care law, but you can expect Fitch to revisit that decision when the legislation's more onerous pieces kick in.

Investors aren't too concerned right now either. Eighty-six percent of the CAPS members rating the hospital operator believe it will outperform the market. You can admit yourself to the Tenet Healthcare CAPS page and give us your prognosis for its future.

Nice threads
Investors have seen the future and it's apparently in optical networking. JDS Uniphase and Finisar have seen their shares soar since the end of January. JDS Uniphase's stock jumped 70% while Finisar is up 60%. Even Agilent (NYSE: A), which should sell its network solutions test business to JDS Uniphase by June, is up 30% since then.

But the big run-up has some investors concerned they've come too far, too fast. CAPS member Hetuck says JDS Uniphase is a stock to own, but advises waiting to buy more shares:

A solid company with great earning potential, but for right now it seems to be a little overheated and needs to pull back a bit before taking another great run.

Therefore, I recommend holding what you have now of JDSU and wait for the dip to buy more. 

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.