Stocks That Swayed the Skeptics

It pays to be skeptical when you invest. In addition to doubting what the analysts tell you, you often have to discount what the companies tell you, too. On Wall Street, going against the grain can reap huge rewards. Investors such as Buffett, Graham, and Neff abhor the "wisdom of crowds."

Today's new breed of contrarian investor can be found at Motley Fool CAPS, where these savvy Fools are willing to see both the upside and downside of a stock. While their often negative opinions peg them as "skeptics," their top CAPS ratings mean they're right far more often than not. And when they find a stock they actually believe will outperform, perhaps we should take notice.

Here are some recent picks from our list of Foolish CAPS skeptics:

Just as a list of their worst stocks would not be a list of stocks to short, this list of the skeptics' favorites isn't a collection of automatic buys. But they do offer an excellent starting place for your own research of extreme buying opportunities.

Inquiring minds want to know
It takes a leap of faith to invest in a turnaround. WiMax specialist Alvarion is asking for patience as it switches from being a pure equipment provider to an end-to-end solutions seller offering a wide range of services beyond its own products. But management isn't sending out signals yet that it can be successful. After a 14% sequential drop in revenues last quarter and the prospect for additional revenue shortfalls next quarter, Alvarion decided not to provide details on updated guidance.

It's also facing intense competition from Cisco Systems (Nasdaq: CSCO), and wireless carriers Verizon (NYSE: VZ) and AT&T (NYSE: T) are backing a different standard altogether, called long-term evolution. Even with a $100 million bankroll and valuations that make it look comparatively really cheap, Alvarion may need divine intervention to save it.

More than 1,000 CAPS members have weighed in on the WiMax equipment provider, and 97% disagree. CAPS member umps15 says those who've given up Alvarion (and WiMax) may be jumping the gun:

Wimax has been slow to catch on, and investors are justly afraid that the technology will be dead, as in Betamax dead or HD DVD dead. But if you look at the history of wireless systems, the technology has always been fragmented with numerous standards across different companies and countries. In the end, then end user will not care whether their phone is using Wimax or [long-term evolution] or whatever as long as it works. And technologically they are pretty much on equal footing. 

No sinking feeling
Taking a page from New Oriental Education & Technology Group (NYSE: EDU), educational-services and vocational-training provider China Education Alliance sees burgeoning demand to support its business model. But even though the demand exists, there's a lot of competition for supplemental education in China, and most are larger than China Education.

It might be all of that competition that undercut management's rosy outlook for growth. Back in March, the CEO said the company would realize 30% revenue growth in 2010, but first-quarter revenues rose by only 5%. That means the rest of the school year is going to have to experience tremendous growth to graduate to that level.

CAPS member bartleyrc doesn't see China Education getting left back, as its remote learning for rural areas of China make the grade: "My friends from Beijing that I met at Notre Dame would agree wholeheartedly on the value of providing language (ESL, etc.) training in the cities and providing vocational and higher education through the internet to otherwise [inaccessible] or difficult-to-access regions of China in terms of educational opportunity."

A bright idea
Of the three companies I've discussed today, TeleCommunications Systems is the one I'm least skeptical about. Its stock has been absolutely hammered since the beginning of the year, but despite the earnings misses, the beatdown seems to have more to do with the lumpiness of government contract awards than with its business. Indeed, it continues to win contracts that should provide it with plenty of upward mobility later on -- and, oh, by the way, its technology serves as the underpinning of all those Tweets on Twitter. As CAPS member tenmiles noted when making his pitch, the patent-infringement cases it has pending amount to a "free 'call option'" on TCS.

I've marked the wireless-data specialist to outperform the broad market averages, but you can add your own text on the TeleCommunications Systems CAPS page.

Seeing past the obvious
Skeptics know that just beyond the storm clouds lies a shimmering morning. Conversely, the sun can't shine forever, whatever the crowds may think. It pays to start your own research on these stocks on Motley Fool CAPS, so stop by and tell us which stocks are your own favorite contrarian picks.