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 |
Company |
||
|---|---|---|---|
|
96.58 |
MannKind |
** |
|
|
99.41 |
STEC |
*** |
|
|
98.28 |
Sequenom |
*** |
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
As expected, biotech MannKind reported quarterly losses narrower than they were a year ago as it was able to reduce R&D spending on its potential blockbuster insulin therapy, Afrezza.
Following Food and Drug Administration acceptance of MannKind's response to its complete response letter, investors are now waiting for the regulatory agency to approve the medication for sale. The decision should come by the end of the year. Assuming it's approved, it would be a hard-fought victory for the biotech, but even if it wins the battle, the question remains: Can it prevail in the war? Larger, better-funded rivals like Eli Lilly
Until it gets Afrezza to market, MannKind has a limited supply of cash to draw on to survive, since it has no other products on the market. Management says it has enough funds available to make it through the first quarter of 2011, which gives it a very narrow window to make it through. And then we need to find out whether doctors will prescribe it.
CAPS member alecmonica thinks so, believing that Afrezza will become the standard of care for diabetics in the future.
Approval for Afrezza is all but assured now that the company has met with the FDA and worked out all remaining issues with the next generation inhaler called Dreamboat. A reduction in debilitating hypoglycemic events of 30-50% with Afrezza than with standard insulin injections make it a big improvement in the standard of care. Look for this to be a multi-bagger in the coming 3-5 year horizon.
A dose of reality
Fool me once, shame on you. Fool me twice, shame on me. That edict can probably best sum up how investors reacted to STEC's earnings report that came in better than expected, but still caused the stock to fall. Last quarter, there was a lot of fanfare surrounding its supply agreement with EMC
Now that STEC says the inventory issue is resolved, but refuses to discuss EMC in any meaningful fashion, investors are right to be wary. But does that just give them an opportunity? Maybe another saying, the burned hand learns best, is what's driving STEC these days, and rather than risk causing more confusion, it thinks it best to say nothing at all. This suggests that maybe next quarter will be much better than expected again.
CAPS member Silverkinggames might be thinking that, expressing the view that SSDs will soon supplant traditional drives because of their technological superiority:
SSDs are the new tool for the future. As network communications increase, faster access to the information in the servers will be required. SSDs are the only storage solution that will be able to keep up with that demand. SCSI is the current leader but many enterprise SSDs already meet those speeds. Also with no moving parts the power and heat is reduced allowing data centers to be cooled more effectively, which lowers support costs for companies to maintain the servers.
Market disconnect
Sequenom would seem to be the epitome of the underdog candidate. Poised to release a huge leap forward in Down syndrome testing, it suddenly reveals that the data supporting the test may have been fudged or mishandled at best. It not only needs to salvage the test by proving it is viable, but it also has to rescue its reputation.
The biotech's MassArray technology will help in that quest, and could be why 91% of the CAPS members rating Sequenom think it's a great investment and will go on to outperform the broad market averages. You can test your knowledge of the company on the Sequenom CAPS page and decide if you think the biotech is headed for another leg down.
There's no need to fear ...
Underdogs often do best with their backs against the wall. Still, it takes more than a few All-Star picks and a quick read 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.
Editor's note: An earlier version of this article implied that both Pfizer and Nektar Therapeutics marketed Exubera. Under an agreement between the two companies, only Pfizer marketed that product. The Fool regrets this error.
