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
The market had a freak-out moment there last week when Hasbro said its fourth-quarter sales were going to be a disappointment and it no longer thought it would report revenue growth for the year. The stock opened almost 5% lower.

That followed LeapFrog Entertainment slashing earnings estimates, and suddenly everyone was running for the exits. Mattel (NYSE: MAT) shareholders might want to consider the toymaker's upcoming results, too.

But as anyone who has followed Hasbro should know, last year's fourth quarter included some big box-office movies in its results: Transformers 2, Wolverine, and G.I. Joe. This year, Hasbro had nothing. Moreover, with the launch of its new TV channel The Hub in October, management had said it the bulk of its spending to support the launch would occur in the fourth quarter.

Obviously, management -- and most other retailers and analysts, for that matter -- was expecting a stronger holiday shopping season. We've since learned that the highly promotional November start pulled sales forward so that December ended up being anemic. With Christmas on Saturday followed by a Sunday blizzard in the Northeast, no one was spending any more money during a period that's just as critical a week as before the holidays.

Yet Hasbro has a couple of movies coming out, its TV channel will fully support those efforts, and toys aren't going to be any less popular tomorrow. Those are just the reasons CAPS member InvestorTheHaun expects Hasbro to outperform the market.

Good products, like the idea behind thehub.com and think their movie tie-ins in 2011 will be great news for the company. Since they've been coming down, now seems like the time to buy in.

Let us know what you think on the Hasbro CAPS page.

In the checkout line?
Welcome to the public markets, SemiLEDS. The maker of LED chips and components just went public last month, and its first earnings announcement caused its stock to plummet. Even though first-quarter profits soared to $3.8 million from just $400,000 last year, and revenues nearly doubled, its forecast for the second quarter was actually below what it did last year because of pricing pressures.

The news also sent other LED players lower, including Cree (Nasdaq: CREE) and Aixtron (Nasdaq: AIXG). That had offset gains the two made previously when it was rumored that Cree might buy Aixtron, though Aixtron shares haven't traded near the supposed buyout price, suggesting investors were largely discounting the possibility.

While business might be soft for SemiLEDS now, the overall industry trend points to big growth. Some analysts believe LED and fluorescent lighting will account for 75% of the lighting market in 2020. That might not seem like much of an achievement, considering Congress has effectively outlawed incandescent bulbs. But the inflection point for the next-generation lights should hit around 2014, just as the phase-out of incandescents is complete.

CAPS All-Star poinkie thinks the hype machine went into overdrive when SemiLEDS came to market, but the resulting sell-off is overdone, too.

Way overhyped from initial IPO last month & now a bit oversold but reasonable. Asian growth still a strong opportunity. Will rebound ahead of market over next 6 months as hype & reality merge.

Add the stock to your watchlist and have all the Foolish news and analysis about it gathered in one place.

A well-dressed opportunity
When consumer electronics retailer Best Buy (NYSE: BBY) disappointed the market last month by saying TV sales were much weaker than anticipated, it should have been a warning for investors of chipmaker Trident Microsystems.

Those fears were realized last week when it issued fourth-quarter guidance that was well below its own previous forecasts as well as that of Wall Street. To compound the problem, it says the first quarter's results are going to be even worse.

Still, 96% of CAPS members rating the chip maker think consumer electronics will rebound and Trident Microsystems will turn in market-beating performances again. You can follow along by adding it to the Fool's free portfolio tracker.

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.