Short-sellers and hedge funds, though sometimes shadowy, are often seen as the smartest gals in the room. They did their homework and will bet their capital against the crowd. It's not the most popular way to go, but the rewards can be quite lucrative.

On Motley Fool CAPS, we've got our own brand of leading analysts who found the chinks in a company's armor and correctly called its fall. "Underdogs" are investors who earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market.

Let's look at some of the recent calls these All-Star investors have made. Yet, just as hedge fund operators don't always go short, we're going to look at recent Underdog picks no matter which way they've called them.


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CAPS Rating (out of 5 max)




Verizon (NYSE:VZ)





PotashCorp (NYSE:POT)





Wal-Mart Stores (NYSE:WMT)





American Science & Engineering (NASDAQ:ASEI)





Cameco (NYSE:CCJ)



Not every short sale goes as planned, so it's a risky position to hold. 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, but rather as the launching pad for further research.

Underdogs still wag their tails
The sour economy has generally enabled Wal-Mart to prove that it is still at the top of its game, even if it's not completely recession-proof. As grocery store chain Kroger (NYSE:KR) has discovered, the value proposition of selection and price is a successful combination popular with consumers, and the deep-discount retailer thinks it can replicate its success internationally. Wal-Mart just completed its biggest acquisition in Latin America by acquiring Chile's largest grocer, D&S, and has plans to continue opening stores at a double-digit pace in China.

Top-rated CAPS All-Star PuddinHead42 thinks Wal-Mart will continue to shine in this economy, and if a stimulus package is passed, will stand to benefit as it did last year:

Walmart at $49 is at the bottom of its range. During these bad economic times it should generally outperform its rivals. Reported bad earnings a while back and took a 10% hair cut, but I think for a swing trade it is worth a play around this area. The upcoming stimulus might be enough to help its customers buy a little more.

An enriching investment
Even as the new administration seeks to withdraw U.S. troops from Iraq, it wants to redeploy them to Afghanistan. That means there will be no let-up in the need to protect them from attacks, and American Science & Engineering's new ZBV Military Trailer contract, worth over $67 million, ensures that the contractor stays a viable investment.

While many perhaps thought that a new president might mean defense contractors would be a bad bet, it undoubtedly comes down to where you look. OSI Systems (NASDAQ:OSIS), for example, has also secured Defense Department contracts for its detection devices, showing that the threat from terrorists is not being disregarded.

That threat is why CAPS member SmileDarling thinks that American Science & Engineering remains poised to outperform the market:

Over the next few years I predict a few more terrorist attacks (although probably not on American soil) which will cause more people to become worried about public safety. The increase in attacks could come as a result of people testing ... Obama's resolve. Also, with a recession that is likely to be with us for the next year or so people will want more security overall and this will translate into more money spent on security-inspired devices such as x-ray machines for airports.

There's no need to fear ...
When underdogs have their backs against the wall, that's when they can shine their brightest, but it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. So 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. There's more than you think.

Wal-Mart is a Motley Fool Inside Value selection. American Science & Engineering is a Rule Breakers pick. The Fool wrote puts on Cameco. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of Wal-Mart and Kroger, and owns options on Cameco, but 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.