These Underdogs Are No Dogs

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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 today 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

Member Rating

Company

CAPS Rating
(out of 5)

tuffsledding99.92E-Commerce China Dangdang (NAS: DANG) *
traviskang98.13Micron Technology (NYS: MU) ****
setonhall91.62Progress Energy (NYS: PGN) ****

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
Piracy is rampant in China, and I'm not even talking about the notorious penchant for knocking off the latest software title, movie, or integrated circuit. Basically dubbing themselves as "China's whatever" has allowed Chinese IPOs to tap into investor enthusiasm for hitting the next Big Thing.

Renren went public as the Chinese version of Facebook, Youku.com was its YouTube, and E-Commerce China Dangdang is consistently billed as China's Amazon.com (NAS: AMZN) . But if their performance after their public debut is any indication, they're going to need a lot more than coattails to ride to build a successful business. Dangdang is down more than 60%, Renren is off 55%, and Youku has been cut in half.

If it really wants to compare itself to Amazon, Dangdang is going to have to try and match the stellar performance the e-commerce leader turned in last quarter, when revenues surged 51% even as profits slid 8%.

CAPS member googs77 thinks the comparison is valid, though, and says Dangdang just needs time to grow into Amazon's shoes:

"Amazon of China" just transitioning into more than books (similar to Amazon). Has developed infrastructure for delivery in China (including rural areas) with local couriers. This takes time to develop and gives them a temporary competitive advantage.

Use the E-Commerce China Dangdang CAPS page to let your fellow Fools know whether you think the company can match Amazon.

An eroding foundation
If the tech sector's success stories included more than just iPads and iPhones, Micron Technologies might be doing a whole lot better than it is. Instead, with its specialties in the areas that are doing worse than usual, like PC memory chips, it's leaving the likes of SanDisk (NAS: SNDK) to soar because of its focus on mobile computing.

Key customers Nokia  (NYS: NOK) and Research In Motion are having problems of their own in the handset market, so it's not too surprising that the chip maker is down on its luck and its stock dwells in the basement. Yet trading at just eight times next year's earnings and below its book value, CAPS member Doulk thinks Micron is cheap enough to take a stake in: "Trading below book value. Oversold. Time to buy in. Sell out at 10.50 as insiders sell at 11.00."

Tell us on the Micron Technology CAPS page whether it will chip away at the negative sentiment surrounding it.

Did we disconnect?
Announced earlier this year, the merger deal between Progress Energy and Duke Energy (NYS: DUK) is moving closer to a shareholder vote scheduled for late next month. The $13.7 billion deal would create the largest utility in the country, with more than 7 million customers in six states.

Opposition to the union has launched several shareholder lawsuits, one of which accused Progress of accepting Duke's bid too quickly and not seeking a better offer from competitors. Dominion Resources was one company said to be willing to bid more for the utility. Progress is willing to pay the plaintiffs $550,000 just to make it go away.

Whatever the outcome, the CAPS community has been supportive of Progress' progress, with 91% of the nearly 300 members rating it believing it will outperform the broad market averages. Add Progress Energy to the Fool's free portfolio tracker to see whether these two companies will be better together.

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.

At the time this article was published The Motley Fool owns shares of Research In Motion. Motley Fool newsletter services have recommended buying shares of Dominion Resources and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributorRich Dupreydoes not have a financial position in any of the stocks mentioned in this article. You can seehis holdingshere. The Motley Fool has a stress-freedisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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