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 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
On the surface, Coca-Cola wouldn't seem to be a better buy than steel-cage death-match rival PepsiCo
Yet Coke is able to churn more of those sales into profits. Where Pepsi nets $0.10 out of every dollar in profits, Coke bubbles up $0.35, giving it a multiple that's discounted by the market by a third of its rival's. Having purchased its largest bottler last year, Coca-Cola is now master and commander of 90% of its North American distribution and its Diet Coke brand surpassed Pepsi as the second-best-selling soda in the U.S. -- second only to regular Coke -- as Pepsi volumes declined sharply.
While Warren Buffett's ownership of Coke is enough for some investors, like CAPS member nshamapant (along with a valuable brand name and a dividend that yields almost 3%), others see the diversity of its products as key to its growth. CAPS member socalwatcher just wishes it were more aggressive internationally: "Coke was smart to get into the vitamin water business. I think they will continue to outperform that market, although they really should be more agressive in emerging markets."
Head over to the Coca-Cola CAPS page and drink in the diverse opinions on the world's most valuable brand.
And eroding foundation
Markel is another investor favorite because of a tangential relationship to Buffett, with a management team that emulates Buffett's investing style and operations that resemble Berkshire Hathaway. You can also add Leucadia National
The natural disasters that have swamped the country so far this year -- tornados through the heartland and floods along the Mississippi -- have depressed many property and casualty insurers. Industry estimates peg losses to the severe storms at around $8 billion, very close to the $9 billion the industry experienced for all of last year, and we're only just getting into hurricane season.
But lumping all insurers together could cause investors to miss opportunities. For instance, at its annual meeting, Markel said it doesn't expect the Mississippi floods to impact it very much.
The price seems to be good at only 1.2 times book value...the big question is can they continue to grow? They appear to have a blend of growth performance (thus no dividend) matched with a more "value" risk profile. Hoping for some safety here with a reasonable probability of growth leading to out performance.
Chinese IPOs have generated investor enthusiasm simply by branding a company as "the next whatever." Renren
Dangdang and Youku can point to the expiration of the lock-up period as a partial explanation of their stock's decline, with insiders willing to cash in quickly on whatever riches might be coming their way, but Youku has already had a secondary offering. Its outside investors might be feeling particularly diluted already.
CAPS All-Star GundersonGroup says the well of money (if not goodwill) has already run dry for Youku:
Chinese Internet bubble bursting. YOKU is burning through tremendous amounts of cash every quarter, will be unable to go back to markets with recent stock market action to raise funds and not likely to get lending from Chinese banks. TBV of 2.70 per share
Add Youku to your watchlist to determine whether this will become a big video hit.
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.
The Motley Fool owns shares of Markel, Berkshire Hathaway, Coca-Cola, and PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo, Leucadia National, Markel, Berkshire Hathaway, Amazon.com, and Coca-Cola. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. 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. The Motley Fool has a disclosure policy.