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'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.

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 iPad upended a lot of apple carts in the computer industry and among the related technology players. Dell and Hewlett-Packard (NYSE: HPQ) saw PC sales tumble. Dolby (NYSE: DLB) saw analysts downgrade the stock because of lower licensing royalties earned on tablet computers. Best Buy doubled down on big-screen TVs and wasn't prepared for the uptake in tablets.

Now that the iPad 2 is out, who else will find themselves reeling? Marvell Technology apparently is one that was hit by the PC slowdown. It also suffered from inventory issues and a product mix at customer Research In Motion (Nasdaq: RIMM) for which it couldn't provide solutions in sufficient numbers. It believes all of these problems are either behind it or readily resolved going forward, and CAPS member tenmiles says buying when the "chips are down" is a good time to capitalize on an overdone sell-off.

The overwhelming majority no doubt agree as 94% of those rating the chipmaker believe it will still go on to outperform the broad market averages. You can add Marvell to your watchlist and see if it can once again pad its lead.

A well-dressed opportunity
Contract rigger and oil and gas driller Unit reported higher fourth-quarter revenues and profits a couple of weeks ago, but its stock is still trading lower today (beyond the major sell-off under way as a result of the downgrading of Spain's ratings). Still over the past year, shares are some 25% higher.

At just 13 times forward estimates, the market is putting Unit on the same footing as other industry services players like giant Halliburton and Baker Hughes (NYSE: BHI) With its drilling rig utilization rates on the rise and the fourth quarter marking the sixth straight quarter it's raised the average number of working rigs compared with the previous quarter, Unit appears well on the way to a strong year.

Like Marvell, Unit enjoys overwhelming support in the CAPS community with almost 99% of those rating the oil services specialist to beat Wall Street going forward. Let us know on the Unit CAPS page whether you think it's offering investors an even risk-reward exchange.

All aboard!
Undoubtedly it's those same forces that pushed Weatherford International higher, but better drilling prospects won't help you if you have accounting irregularities, and that's what's sent the oil services company spiraling downward. It's stock has fallen 14% since it disclosed the issue. The Middle East turmoil isn't helping either as it has some exposure to the area, with 3% of its revenues derived from Egypt, Libya, Tunisia, Bahrain, and Yemen.

Unlike the accounting fraud that has tainted so many Chinese small-cap stocks, Weatherford's problems lay in the tax treatment of intercompany revenues. Regardless, it goes back several years and it's going to have to restate its financials to the tune of $500 million.

In making the recommendation to outperform, highly rated CAPS All-Star member TDRH says he's looking for it to be a short-term issue.

Books may be cooked, but the outlook for a short term rebound is good. This is an older, established oil service company, not a fly by night .com. They should rebound, and with oil climbing even a leaking boat will float.

Add this oil services player to the Fool's free portfolio tracker and keep tabs on how long it will tax investors' patience.

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.