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. Several legendary investors have been contrarians, including 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 picks from five of the top CAPS skeptics:
|
Company |
Skeptic |
Player Rating | |
|---|---|---|---|
|
Citigroup (NYSE:C) |
*** |
TMFKMoney |
100.00 |
|
USEC (NYSE:USU) |
*** |
StatsGeek |
100.00 |
|
Hercules Offshore (NASDAQ:HERO) |
***** |
TDRH |
99.99 |
|
Harley-Davidson (NYSE:HOG) |
** |
TheGreatSatan |
99.99 |
|
Cardinal Health (NYSE:CAH) |
*** |
DemonDoug |
99.98 |
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 requires a little more thinking and drilling down into the financial statements than that. But it's a place to start.
In hog heaven
Harley-Davidson holds the 45th-most-valuable brand in the world, according to the market researchers at Interbrands.
Top-rated All-Star millionairefools views the cultivation of that brand recognition as one of the keys to the company's success, in the past as well as the future.
Harley is one of those companies whose strengths look like weaknesses to many people. When you think of Harley, the image that comes to mind is a product loved by the blue-collar [consumers]. The conclusion reached by many people is that this is a product for an economic class easily influenced by swings in [the] economy. With the subprime bubble bursting under its own weight and US [economic] growth not exactly running ahead of inflation ... stay [away] from this beast lest it bites.
But the image is a cultivated image -- steel, gravel, bandana and dirt. That's what the appeal is. Doesn't mean that only people who live amongst them will buy and use the product. With P/E around 15, such [an] impeccable brand, [the] company in an expansion mode across the globe and a product that ultimately sells something recognizable across all cultures ... I think S&P is an easy one to leave behind.
That Standard & Poor's reference refers to the ratings agency that cut Harley's outlook because the motorcycle maker forecast a weak second half of the fiscal year. Harley lowered its earnings guidance for the full year, marking the first time in 20 years that the Hog hawker might experience an earnings decline.
Yet brand is important to dymaxian as well, and it's an intangible that can't be easily dismissed.
Even if you don't ride them, you can't mistake the sound of one as it passes you on the highway. I don't think I've ever met someone who doesn't recognize this brand name, and not many who don't lust after them. Few brands are so strong they create their own lifestyle....
Seeing past the obvious
Contrarians try to see past the headlines. They know that just beyond the wrack and ruin of the storm clouds lies a shimmering morning. Drop by CAPS and tell us which stocks are your favorite contrarian picks.
