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These Underdogs Are No Dogs

By Rich Duprey - Updated Apr 6, 2017 at 10:20PM

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Like the smart hedge fund operators, these CAPS investors bet against a stock -- and won big!

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.

Underdog

Member Rating

Company

CAPS Rating
(out of 5)

billydakid

99.59

Banro (NYSE: BAA)

****

Plumbroke200

99.18

Micromet (Nasdaq: MITI)

**

jeffro323

98.63

Varian Medical Systems (NYSE: VAR)

*****

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
Last fall, Canadian gold explorer Banro had a big run-up from $1.50 per share to almost $4.50 a share as it broke ground on its Congo-based gold mine that it expects to have up and running by the fourth quarter of this year. Yet just as fast as Banro rose, the stock has been falling back down.

Since hitting its 52-week high in December, the stock has lost 36% of its value. Yet the mine, when started, is expected to allow the miner to finance the growth of its production profile along the Twangiza-Namoya gold belt. Over the first five years of the mine's life, Banro believes it can achieve 1.2 million ounces of gold production at total cash costs of $359 per ounce. That compares favorably with up and coming Canadian gold producer Brigus Gold (NYSE: BRD) whose wholly owned Black Fox Mine in Ontario will have cash costs in the range of $500 to $550 per ounce and Gold Fields is around $760 per ounce.

With almost 200 CAPS players weighing in on Banro, 95% believe it will be able to outperform the broad market averages. Mine the Banro CAPS page for additional thoughts on this gold exploration company.

Early to bed, early to rise
Because Micromet owns all the rights to its technology to treat acute lymphoblastic leukemia, if midstage studies result in positive outcomes as many analysts believe will occur this year, it could see late-stage trials next year and if those are just as positive, then partnerships and lucrative royalties are its to have. That's a lot of wishing and a-hoping, no? We've seen plenty of promising drugs stumble as the hurdles get higher.

In the meantime, Micromet has little in the way of revenues coming in meaning it's going to need to tap the public markets again to finance itself. While that's not uncommon, it also dilutes current shareholders and with little more than dreams to go on, it's a hard bargain for investors to make.

In its favor, the biotech has been able to persuade a number of pharmaceuticals to sign up for its other therapies under development. AstraZeneca (NYSE: AZN) subsidiary MedImmune and sanofi-aventis (NYSE: SNY) partnered with it to run early stage trials for antibodies for patients with solid tumors, Nycomed is on board for early stage trials for an antibody for inflammatory and autoimmune diseases, and Boehringer Ingelheim is testing out treatments for multiple myeloma. In fact, Micromet has eight separate partners for various therapies, so it's not out of the real of possibility for all of this to come together. Investors just need to be mindful that all this collaboration is still early and there's a long road ahead.

CAPS All-Star efarev believes Micromet's pipeline is broad enough that it should hit success on occasion, but expect volatility in the process.

Because it is hard to put a price tag on MITI's pipeline right now, the stock has been susceptible to big swings on no real news. Looking at the chart you can see the stock has bounced between $5 and $8 since mid 2009. Catching it on the low end of this range seems like a good buy to me.

All aboard!
Also eyeing growth in oncology is Varian Medical Systems, which has to go up against Accuray (Nasdaq: ARAY) in the radiation oncology segment. So far the match up has leaned in Varian's direction and analysts are looking for the medical device maker to expand its market share there. For the first quarter, it saw net orders jump 20% in North America while its X-ray division saw a 22% gain in net orders. Gross margins have been hitting record territory as a result and it passes some key fundamental tests.

Nearly 400 CAPS members have weighed in on Varian and 96% of them are rating it to outperform the broad market averages; 99% of the All-Star members think it will, too. Follow along to see who has the ultimate competitive edge by adding Varian Medical System to your watchlist.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Varian Medical Systems, Inc. Stock Quote
Varian Medical Systems, Inc.
VAR
Sanofi Stock Quote
Sanofi
SNY
$47.91 (0.74%) $0.35
AstraZeneca PLC Stock Quote
AstraZeneca PLC
AZN
$54.76 (-1.17%) $0.65
Accuray Incorporated Stock Quote
Accuray Incorporated
ARAY
$5.05 (3.70%) $0.18

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