Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest ones 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 also have investors 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 members expect will outperform the market. If these CAPS investors have scored big by correctly predicting which stocks will fall, it may be worth our while to see what they think will succeed.
(out of 5)
Boeing (NYSE: BA)
InterOil (NYSE: IOC)
Wal-Mart (NYSE: WMT)
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
We might be on the brink of a double-dip recession, under the weight of government debt, and dealing with high unemployment, high oil prices, and consumers afraid to spend. Who'd have thought the one industry expected to be profitable this year is airlines? Yes, the industry Warren Buffett has advised us to avoid like the plague.
According to the International Air Transportation Association, the airline industry is looking at a $2.5 billion profit in 2010 -- a 180-degree turn from the $2.8 billion loss the trade group predicted just two months ago.
Obviously, this is a very fluid situation, but American Airlines parent AMR (NYSE: AMR),Delta (NYSE: DAL), and Southwest all reported surprising revenue gains in their latest quarter. The anticipation level is high enough that Boeing saw fit to boost its production calendar above and beyond the orders from its list of international clients.
CAPS member surfnskate isn't so sure the buildup is worthwhile because there are just too many factors, domestic and international, that could change the situation dramatically.
So I know I'm going against the crowd...but hear me out. Dollar is getting stronger and this has a negative effect on their exports. Increased competition from Europe and weaker euro will also take away from their sales. Reduced defense spending. The outsourcing problems for the dreamliner aren't done...perhaps they are done in the development stage but not production stage...meaning more M&A they didn't really want or need in order to control the supply line. Management keeps changing timelines...and they aren't done.
A dose of reality
They say the best revenge is living well, and InterOil and its investors have been doing just that. Even though shares are down 34% year to date, they're up more than 95% over the past year. The company reported hitting the top of its Papua New Guinea reservoir at a level higher than anticipated, causing it to increase its estimates of just how large the pocket is. It's also planning to build a major liquefied natural gas (LNG) export facility in Papua New Guinea, fortuitous because ExxonMobil (NYSE: XOM) is also building a LNG plant there. And Japanese conglomerate Mitsui has agreed to fund and operate InterOil's Elk and Antelope fields.
Yet some maintain that things still aren't going as well as they say: The Mitsui partnership is really one more akin to banker and borrower, and drilling beyond the initial objectives, as recently announced, suggests they didn't really find what they were after.
CAPS member maestro43 hasn't been swayed by the critics, believing InterOil's assets will ultimately pay off.
Regardless of what the detractors and shortsellers say, [InterOil] has tremendous assets and strategic positioning to market them. Within 4 years market cap should be in the neighborhood of 25 Billion.
A golden opportunity
Continuing its quest to be where America shops for all of its needs, Wal-Mart reached an agreement with Eli Lilly to sell its insulin brand Humulin, with free rein to set pricing on it. It's yet another shot at pharmacy chains like CVS Caremark (NYSE: CVS) as Wal-Mart tries to draw consumers who may otherwise shop at CVS.
Highly rated CAPS All-Star nibs61 says Wal-Mart's commitment to rolling back prices makes the business undervalued.
The CEO is going after business with pricing and this will be just what they need as to get their loyal customers coming back again and again in these tough economic times. They also said they will be hiring over 500,000 people in the coming few years and this sounds like a growing company to me.
There's no need to fear ...
Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph 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.
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