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 automatic buys. But they do offer an excellent starting place for your own research of extreme buying opportunities.

Inquiring minds want to know
Investors have good reason to be skeptical about Almost Family's immediate future given the investigation launched by the SEC into its Medicare billing practices. Along with Amedisys (Nasdaq: AMED), Almost Family is being looked at to see if it fraudulently increased the number of home visits to patients to earn thousands of dollars in additional reimbursements from the health care program. Peers Gentiva and LHC Group were involved in a Senate inquiry but aren't part of SEC investigation.

Naturally, the stocks of these home-health-care providers were sent into a tailspin as a result, but CAPS investor UltraLong, who writes that despite trading at a premium to others in the space, Almost Family has better long-term prospects than most. If the market punishes it enough, it would be a top buy for him.

Almost Family does trade at a higher multiple than the majority of the sector but it also boasts a considerably more attractive long-term growth rate of 9% while the other big names grow closer to 6%. AFAM is net cash positive by about $3 and trading currently at 1.4 times book and about 8 times 2011's profit projections. Although Almost Family has released no information regarding its billing and visiting practices, I'd remain fairly confident in their business practices and not worry too much about those financials. But, given their recent silence in the midst of this SEC probe I have chosen to give AFAM the greatest downside possibility of this bunch. I think AFAM makes a great buy around $17 if it makes it there.

No sinking feeling
The glimmer of hope that the leaking from the leaking BP (NYSE: BP) oil well has finally been staunched, even if only temporarily, helps illuminate the potential found in ATP Oil & Gas, a junior oil and gas developer with most of its business locked up in the Gulf of Mexico. More than two-thirds of its reserves are found there, and if President Obama is ultimately successfully in ramming through his drilling moratorium, it looks like it's facing a pretty dry run.

Yet, it still has assets in the North Sea and a moratorium wouldn't be forever, meaning it might mean just several months’ delay in its projects. Annoying and detrimental, sure, but not life threatening and hardly worth the 60% cut in share price ATP has endured over the past few months. This could be one of the best undervalued stocks around.

Highly rated CAPS All-Star member DarthMaul09 says with the market going through one of its manic periods with ATP, now's the time to stake a claim.

I think that the market has been off its Haldol too long. It must be seeing things that just aren't there, like an alternative to oil and natural gas. The beauty of a crazy market is the entertainment value of stocks rising and falling for no particular reason (PetroAlgae comes to mind), but the real fun is when good companies sell off at deep discounts to their real long-term value.

Is it morning in America?
Chinese wireless network solutions provider Telestone Technologies is benefiting from increasing demand from the country's big three mobile telecoms, China Mobile (NYSE: CHL), China Telecom, and China Unicom (NYSE: CHU). Earnings for 2010 are expected to hit $22.9 million (excluding stock option costs), an 83% increase over 2009, while net margins are expected to expand slightly to 17.7%.

Although CAPS members think the market is off its rocker when it comes to the valuation assigned to the companies highlighted today, TMFBreakerThiel says it's not typically so far off its estimations. He points out that Telestone's days sales outstanding are seriously skewed, which might account for its very low valuation.

... the reason for the valuation is clear: Nobody pays these guys. DSOs are off the chizarts.

However, the wireless solutions provider says its revenues are generated from system integration products, which are billed in phases over the life of the project.

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.

The Fool owns shares of Almost Family and China Mobile. Try any of our Foolish newsletters today, free for 30 days.