When it comes to investing in the stock market, it pays to be skeptical. Not only should you not believe everything the analysts tell you, but you often have to discount what the companies are telling you, too.

Going against the crowd can pay off handsomely. Some of the market's legendary investors have been contrarians: Benjamin Graham, Warren Buffett, John Neff, and Marty Whitman. Like baseball's greatest place hitter, "Wee Willie" Keeler, contrarians "hit 'em where they ain't."

When the crowd abhors a stock, a contrarian wants to look more closely at it. Similarly, when the masses crowd into one, the skeptical thinker believes it's time to move on.

A new breed of contrarian
Today, I'm looking at a new breed of contrarian, the Motley Fool CAPS "skeptic." Skeptics don't think like most investors. They're willing to see the downside potential of a stock, as well as the upside. CAPS skeptics have rated more stocks as underperforming the market than outperforming it. They're contrarian in that they find more downside potential than upside, but being a top-rated CAPS player means they're right far more often than not, and when they mark a stock to outperform, perhaps we ought to take notice.

Here are some recent outperform picks from five Foolish CAPS skeptics:


CAPS Rating


Player Rating

Dendreon (NASDAQ:DNDN)




ION Geophysical (NYSE:IO)




Smith & Wesson (NASDAQ:SWHC)




Chemical & Mining Co. of Chile (NYSE:SQM)








Source: Motley Fool CAPS.

The stocks above are not automatic buys. Just as a list of their worst stocks would not be a list of stocks to short, this list of favorites requires a little more thinking and drilling down into the financial statements than that. But it's a place to start.

Denying Dendreon
This biotech has been floating on the winds of change in the fate of its Provenge prostate cancer treatment. Earlier this year, the Food and Drug Administration gave it an approvable letter which denied its immunotherapy until Dendreon established more proof of its effectiveness. Then it was found that two of the four doctors who voted against approval had undisclosed financial ties to other drug companies. A recent request for an inquiry into their alleged conflicts of interest has caused a bit of a stir amongst Dendreon partisans.

In this pitch, luvb2b points not only to the investigation of the scientists as reason for having hope, but analyst support for the drug's effectiveness.

David Miller (biotech analyst) has said that he believes there is no doubt Provenge works. While all the other data is clouded it does seem the survival data is clear. With the investigation of the FDA panel announced today seems like a good speculative pick ahead of interim data analysis of their large phase 3 trial early next year.

Yet another All-Star looking at Dendreon, fogman24, says he thinks the Provenge issues make it too risky. Relying upon the kindness of strangers never did much for Blanche DuBois, and hoping that the FDA or someone else will come along and give it a boost might be too speculative.

After seeing what can happen to a biotech that hits an FDA road block ([Encysive Pharmaceuticals] anyone?) I've gotta underperform this baby. No near term catalyst or drug coming up the pipeline, years away from MAYBE getting their cancer drug approved, and no products. That leaves nothing holding up the stock price but a whole lot of [people's hopes] and dreams, with inevitable rounds of dilution to keep DNDN afloat. Which will eventually bring the share price down ... but who really knows how long it's going to take before they get the green light by the FDA. As far as I'm concerned, ... it's still a crap [shoot] with the FDA. Just my 2 cents, the FDA drives me nuts!.

Seeing past the obvious
The debate between the bulls and the bears is indeed intense, yet contrarians try to see past the headlines. They know that just beyond the storm clouds lies a shimmering morning. Conversely, the sun can't shine forever, though the crowds may think the green grass and blue skies go on and on. In the meantime, drop by CAPS and tell us which stocks are your favorite contrarian picks.

ONEOK is a Motley Fool Income Investor selection. Don't be skeptical about the 30-day risk-free trial -- start yours today.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.