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 consider these ideas as automatic buys or sells -- just as the launching pad for further research.
Rough seas ahead
Political uprisings in Europe could spell doom to fragile shipping industry players such as DryShips
The rise and electoral success of extremist parties and candidates in European elections who reject the austerity measures needed to put the continent back on a firmer financial footing ensure there will be fewer politicians in the future who will risk their careers touting the policies necessary to correct the coming collapse. Election victories by a socialist president in France and better-than-expected showings from both a Communist Party and a Neo-Nazi group in Greece herald an era of sovereign insolvency.
Particularly worrisome are the implications for Greece. Its economy is a shambles, unemployment runs north of 21%, and its bailout package -- as weak as it was and based on pie-in-the-sky assumptions -- is now in doubt. Office vacancy rates in Athens hit 20% in the first quarter, while tourism has collapsed as foreign bookings plunged 12% this year.
With that as a backdrop, it's hard to muster any enthusiasm for companies reliant on recovery, such as dry bulk shipper Excel Maritime, which just reported earnings that showed losses exploding to $36 million from $1 million a year ago as revenues dropped by a third. Diana Shipping
Last year, DryShips actually generated more revenue from its oil drilling subsidiary Ocean Rig than it made from shipping dry bulk goods, but it has been selling off its stake in the subsidiary in an attempt to shore up its finances by raising cash. Highly rated CAPS All-Star griderX had been counting on the drilling business to keep DryShips afloat, but as Pirate38 notes, the company is hemorrhaging cash and will end up getting swamped: "They are bleeding money. The sale of [Ocean Rig] is a temporary fix to a [financial] statement that spends more than it earns."
That's part of the rationale behind my own rating of DryShips to underperform the market, but also because with Europe in turmoil I'm not convinced China won't have a hard economic landing as well. Add DryShips to your Watchlist and let us know in the comments section below whether the dry bulk shipper will ride out the storm by concentrating again on its core business.
A bubble ready to pop?
There are many Chinese companies that would also be affected by China's GDP falling more precipitously than expected, and even top-dog search engine Baidu.com
Its lead in search is currently unassailable, so it doesn't need to worry yet about Sohu.com's
Yet it might also spur more mergers and acquisition activity of the sort that saw Youku.com snap up Toudu and had Baidu agreeing to include SINA's
Although a tough economy does hit everyone in some fashion, Baidu certainly seems financially sound enough to survive and outlast the competition, which would solidify its leadership position. CAPS All-Star ll0o0ll still finds search to be a growth business, which is why philomore says it's highly unlikely anyone can ascend to the heights Baidu has:
Will someone compete with Baidu for China's search market? Probably. Will they succeed? Not likely. Google's early missteps could prove unrecoverable as millions of new users grow more familiar with Baidu every day.
There's no need to fear...
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Baidu. Motley Fool newsletter services have recommended buying shares of SINA, Sohu.com, and Baidu. The Motley Fool has a disclosure policy.