These 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 also have investors 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.

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
IMAX (Nasdaq: IMAX) is the obvious beneficiary so far of the latest wave in 3-D technology. Higher ticket prices have led to higher top-line numbers, and while you still have to wear funky glasses to enjoy the show, this isn't your father's 3-D experience.

Electronics retailer Best Buy believed that excitement would also translate well to the small screen and bet big that consumers wanted to buy 3-D TV sets. There was enough hope about its potential that IMAX launched its own 3-D TV channel, perhaps thinking programming might mitigate revenues lost at the theater in tough times. Yet what was larger than life on the big screen got cut down to size for Best Buy: It reported disappointing third-quarter sales.

While industry analysts say 3-D TV could garner as much as 41% of the television market by 2014, consumers just went through a round of expensive upgrades, buying up LCD, plasma, and other flat-screen technology. They weren't in the mood for another expensive TV set that would only minimally improve the viewing experience, particularly when Final Destination 3-D and Piranha 3-D were the extent of their viewing options.

The market panicked at the earnings report, and Best Buy's shares are 20% lower than they were a month ago. CAPS member hiddenflem thinks it heralds the end of the retailer's dominance, but more members seem inclined to side with cronycapitalist, who views it as a mere misstep.

[Best Buy's] price recently plummeted due to unfavorable earnings report. I believe it was significantly oversold and thus should see a correction upwards once the noise subsides.

Let us know on the Best Buy CAPS page or in the comments section below whether the chain will recover.

In the checkout line?
It wasn't a lack of demand that led to Dean Foods trading well below its 52-week highs. Rather, lower sales volumes, higher raw materials costs, and pricing pressures were just some of the problems that have spoiled the dairy producer's performance. Third-quarter profit fell by half year over year because butterfat expenses rose and because of lower prices for store-brand milk.

Russian kefir drink producer Wimm-Bill-Dann has come under pressure because of higher raw milk costs, though it's getting bailed out by PepsiCo (NYSE: PEP), which just offered to buy a majority stake for $3.8 billion.

The Fool's Jim Mueller thinks Dean Foods is a victim of messed-up expectations, but its cost-cutting program, consumers' willingness to pay up for food, and analysts coming late to the game mean the company has a big opportunity to move forward. CAPS member socalguyCUI writes enthusiastically about Dean's fundamentals.

Dean Foods had a bad quarter earnings report and immediately dropped 28% to a fresh 52-week low. With a P/E of 8 and a strong market share, [Dean Foods] is very attractive at this price (under $8). The fundamentals are still there, and this stock should get back to the $11-$14 range in the next 4-6 months.

Keep an eye on developments at Dean Foods by adding the stock to your watchlist to have all the Foolish news and analysis about it gathered in one place.

A well-dressed opportunity
Organic grocer Whole Foods Market (Nasdaq: WFMI) has proven the viability of an upscale grocery shopping experience. While Kroger (NYSE: KR), Safeway, and most other supermarket chains have responded by adding healthy choices to their aisles, The Fresh Market is trying to share the stage with Whole Foods after its recent IPO.

Yet the plethora of choices available to consumers means a big challenge for The Fresh Market. But CAPS member rcoonley writes that catering to the wealthy gives the green grocer a good chance to stay in the black .

The Fresh Market's store size is small enough to allow for better inventory management, and the diagonal floor layout requires you to pass a ton of items before you can move back to the checkout. With only a hundred stores, the growth potential seems relatively large. A rebound in consumer spending could show up soon in this higher end segment of the retail market.

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. 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.