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 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)



Frontline (NYSE: FRO)




Kellogg (NYSE: K)




Seagate Technology (NYSE: STX)


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
A few years ago when shipping companies were sailing high on the seas, ship sale and leaseback arrangements became a common transaction. As vessel prices rose, ship owners looked at these transactions as a means of freeing the capital locked in their vessels, while maintaining the ability to trade the vessels under a long-term lease. Vessel owners everywhere, from Teekay to SeaDrill (Nasdaq: SDRL), have engaged in sale and lease-back arrangements.

But is now the time for Frontline to sell and charter back any of its VLCC's when the industry is flooded with vessels? Shipbrokers report the number of crude cargoes loaded out of the Persian Gulf in December on the very large crude carriers trading in the spot market jumped to 120 from 106 the month before. Tanker rates have plummeted and Frontline itself was warning just a few months ago that ship deliveries over the next two years threatened the VLCC market. Yet it's agreed to sell its VLCC Front Shanghai for $91 million and charter it back for $35,000 a day.

Maybe it's operating from weakness here, and its depressed price has CAPS members such as circaclown and Hotpicks101 agreeing it is cheap. But the shipping market is weak, too, and investors may want to use caution.

Let us know on the Frontline CAPS page whether this particular sale and charter back arrangement is going to be the start of a wave that ultimately swamps the shipper.

In the checkout line?
Facing the twin pressures of cheaper, private label groceries and rising raw materials costs, brand name consumer products companies were pinched. Initially, the likes of Kellogg, ConAgra (NYSE: CAG), and General Mills (NYSE: GIS) ate the increases in an effort to protect share and volumes, but as margins took a hit and forecasts were cut, they've decided they need to pass on to consumers their rising costs.

Yet escalating food prices has some wringing their hands that it may lead to global riots. Corn prices jumped 52% last year while wheat was 47% higher, and further increases are possible. And with grocery stores dedicating more shelf space to private label goods -- they account for 10% of sales now -- Kellogg and the others face the prospects of not being able to raise prices high enough without damaging sales.

With 91% of CAPS members rating the cereal maker to outperform the market, though, they undoubtedly believe as pchop123 does that Kellogg's is still a brand name that's offering a good discount. Add the stock to your watchlist and have all the Foolish news and analysis about it gathered in one place.

A well-dressed opportunity
Data storage leader Seagate Technology is on its way back after rejecting a private equity takeover. Even with the stock almost 25% higher, it still sells for just four times last year's earnings and seven times forward estimates, meaning it's still a pretty cheap stock but right in line with how the market values rival Western Digital (NYSE: WDC).

1dms says the drive maker's recent buyback announcement shows management also thinks the stock is still a good deal.

The $2 billion buyback plans came after the company decided to end talks about going private. Management says that offers for the stock (presumably in the mid-teens) were too low. They believe that concerns about the demise of hard disk drives are overblown, which was likely a factor in negotiations. Some tech watchers think that solid state memory drives will replace disk drives in coming years, but most tech watchers doubt we'll see such a move. Seagate has proof: demand has started to rebound in recent weeks, leading management to raise guidance.

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.

Kellogg is a Motley Fool Income Investor recommendation. The Fool owns shares of Western Digital. 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 other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a stress-free disclosure policy.