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, 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 others they think will succeed.


Member Rating


CAPS Rating (out of 5)

FreeMortal 97.90 AgFeed Industries (Nasdaq: FEED) *****
zloj 99.16 Eli Lilly (NYSE: LLY) ****
kayakmastr 98.88 Yahoo! **

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.

Going whole hog
Animal feed and hog producer AgFeed Industries is spinning off its animal-nutrition division, though it will remain the majority shareholder in the venture. While details are slim right now, the animal nutrition is the larger of AgFeed's two segments, generating more than two-thirds of its revenue last quarter.

That will leave AgFeed primarily as a hog producer, which has become a dwindling portion of its business. Having slashed hog production, segment revenue dropped nearly 55%. Compare that with Zhongpin (Nasdaq: HOGS), a meat products producer that's now expanding its facilities to take advantage of rising pork prices. Margins got slaughtered in the current quarter, and government subsidies couldn't make up for rising costs, but the gap between pork prices and hog prices is normalizing.

I remain wary of AgFeed for a number of reasons, but CAPS member kragwyz sees it becoming the Smithfield Foods (NYSE: SFD) of China:

Mouths with more money to spend will eat more meat, and pork is the mainstay meat in Chinese gastronomy. Lots of unknowns with this one (possible fuzzy numbers, societal upheaval, KFC changing traditional tastes, etc.), but my bet is that their push to westernize the hog/pork delivery system (make it "safe" and sell it as such) will put them in line to be the Smithfield of China.

Cheer up
There's no reason for Eli Lilly to be depressed anymore; Cymbalta can help. The drugmaker won FDA approval to expand the antidepressant's use to include chronic pain. Analysts expect Lilly's sales to jump by $500 million, or 16% beyond the $3.5 billion in sales it already generates, but it'll need to move fast. Cymbalta goes off-patent in 2013.

That's a pretty narrow window, considering the options already on the market, including Johnson & Johnson's (NYSE: JNJ) Tylenol 3 and Pfizer's Celebrex. Moreover, Cymbalta also enjoys heavy off-label use as is, so investors need to consider whether it will enjoy as much of a bump in sales as analysts predict.

Last month, shastashadow had faith in Eli Lilly's prospects:

With a dividend of 5%, a refocus on top line management, a refocus on product development and a P/E ratio of 9, I will take my chances on all the negative press and capitalize on future potential.

Let us know on the Eli Lilly CAPS page whether you believe its performance will be a depressing reminder of what's gone on before.

Searching for a savior?
Suddenly, everybody wants to shack up with Yahoo! again. From AOL (NYSE: AOL) to Alibaba and private equity firm KKR (NYSE: KKR), the No. 2 search giant is a hot commodity once more. No doubt it will be a lot more amenable to the possibility of a merger than it was with Microsoft. Its turnaround effort under CEO Carol Bartz has been less than stellar, and CAPS member EPS100Momentum believes the latest talk of a Yahoo! deal is more than rumor this time:

This buyout rumor feels very real, just like the time [Microsoft] offered to buy [Yahoo].
Same type of heavy trading volume, you don't get this type of volume on thin air type of rumors. This one has substantial volume with it. Something in the works and I am buying heavily as well.

Add Yahoo! to your My Watchlist page and watch as the developments unfold. We'll aggregate all the news and analysis about the company for you in one place.

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.

Microsoft and Pfizer are Motley Fool Inside Value recommendations. Johnson & Johnson is a Motley Fool Income Investor pick. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Johnson & Johnson and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a stress-free disclosure policy.