Short sellers and hedge funds may be shadowy, but sometimes, they're 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.
Today I'm looking at two stocks that have lost three quarters of their value, and carry low, one- and two-star CAPS ratings -- highlighting their underdog status against the market averages. Yet, in both cases, Netflix
Of course, not every short sale goes as planned, which makes shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. And you don't want to end up with fleas by lying down with dogs until you do your homework.
Pretty unsocial
It was a pretty big vote of confidence in a beaten down stock when Netflix CEO Reed Hastings dumped $1 million to scoop up shares at market prices. Except, he was buying stock in Facebook
Sure, Hastings still owns a huge chunk of Netflix stock, some $62 million worth, so it's nothing to sneeze at, and he does sit on Facebook's board, meaning he does have an interest in its well-being. Yet, investing is not anything if not trying to maximize returns, so you don't necessarily plunk down $1 million for a feel-good ego boost. Hastings may have felt the need to diversify. Even so, as investors, you want to put your money in the stock you think will bring you better returns.
While business is booming overseas -- Netflix hit one million subscribers in the U.K. and it's spreading its service into the Nordic region -- analysts believe it won't be enough to offset the problems of slowing subscriber growth domestically. CAPS member TMFFischer will make "Netflix the AOL of online streaming," when he considers the plethora of streaming options coming to a TV screen near you.
Let me know in the comments section below if you think Netflix is a dog riddled with fleas because of growing domestic competition, or whether international markets provide enough opportunities to compensate.
A raspberry
Seemingly facing even fewer opportunities than the movie streaming service, Blackberry device maker Research in Motion must confront a dwindling market presence and the possibility that it will soon no longer exist. Analysts may be looking forward to the Blackberry 10 operating system, and calling the QNX-based OS a potential game changer, but it doesn't appear likely it will make much of a dent in the stranglehold Google and Apple
RIM currently has a 2.2% share in tablets, and less than 11% in smartphones, a figure that continues to drop. The handset maker warned investors that the next few quarters would be ugly, and there's still the possibility someone will acquire it. Like Nokia
I agree with ERA2100 that whatever BB10 turns out to be, it's "too little too late," and it will be buried by both Android and iOS. So I've rated it to underperform the market on CAPS. But does that put this underdog in the minor leagues? Give me your view in the comments box below on what you think is the right path to follow for Research in Motion.
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