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 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)

teknowizz97.79Apple (NAS: AAPL) ***
ahknaten99.03Silicon Motion (NAS: SIMO) ****
plumbroke20099.12World Wrestling Entertainment (NYS: WWE) **

Source: Motley Fool CAPS.

Searching for a solution
Considering the successful launch of the iPhone 4S -- it sold 4 million units in three days -- it's surprising to see Apple under the gun. But the stock is down 7% since last Friday as earnings disappointed. As I see it, though, the market was myopic in its view and failed to take into account consumers that held off buying new iPhones until the new model came out.

The iPhone is still taking share from Nokia (NYS: NOK) and Research In Motion (NAS: RIMM) , even without the latter's service outage, but not everyone is buying that Apple's miss was solely an iPhone issue. Android is still gaining share in operating systems, and AT&T reported earnings showing that Android sales have more than doubled over the past year.

CAPS All-Star member kkconway, though, thinks Apple hasn't lost its swagger in the post-Jobs era.

iPhone 4S will sell like mad over the Holiday season. Guidance for next quarter is something like 20% over this quarter. Steve Jobs magic will stick to Apple for at least another year, and maybe much more. Who knows what they have "Cooked" up, LOL. (New CEO Tim Cook, get it?). Their retail stores are mind-blowing, too. Best company in the world with P/E of 8. Cash flow -- they have more than the Federal Reserve Bank!

Add Apple to your Watchlist and see whether it can dial up the growth everyone wants.

Hanging up on wireless
The fabulously successful iPhone rollout can also have implications for Silicon Motion, which makes high-performance, low-power chips for multimedia consumer-electronics products. Its 4G LTE chip was picked up by Samsung earlier this year for inclusion in the mobile-phone maker's handsets.

Mobile storage products -- controllers for NAND flash devices such as memory cards and USB drives -- as well as SSD controllers and embedded flash controllers increased 9% sequentially last quarter. It's also gained from the inclusion of its controllers in Apple's iPad. Equally important, however, is that it's enjoying rising prices for its controllers while memory cards from the likes of Micron Technology (NAS: MU) are seeing prices drop.

With 98% of the CAPS members rating the chipmaker to outperform the broad market averages, you can follow along by adding Silicon Motion to your Watchlist and let us know on the Silicon Motion CAPS page how far the explosion of the mobile Internet is also connecting smartphones, digital cameras, PCs, and tablets will drive the company's fortunes.

Can't touch this!
I was never much of a boxing fan, finding the action slow and ponderous, but the manufactured nonsense that passes for entertainment with wrestling left me even colder. The birth, proliferation, and, yes, violence of mixed martial arts, however, has me excited.

As represented by Ultimate Fighting Championship, or the UFC, the sport has expanded into 155 countries and surpasses in popularity even the NFL in the all-important 18- to 34-year-old demographic, transforming from a fringe sporting event to the mainstream. I just don't see how the Spandex-wearing "stars" of World Wrestling Entertainment can compete.

Yet adjusted revenues were still up 5% last quarter for the wrestling giant (not to be confused with Andre the Giant), while adjusted operating income fell 2%. It also achieved more than 1 million pay-per-view buys worldwide, so someone's still watching this stuff. Indeed, although its peak of popularity was perhaps back in 2008, when revenues hit $526 million, WWE may be able to break that record this year, with $262 million in revenue during the first six months of the year.

It's said that sports fiercely compete for limited discretionary dollars, yet Madison Square Garden (NYS: MSG) , the owner of eponymous sporting arena, the basketball Knicks, and the hockey Rangers, saw an 18% increase in sporting-related revenues. Consumers, it appears, are still willing to spend money to see good entertainment -- even wrestling.

CAPS member Jognils said earlier this summer that WWE got body-slammed for cutting its dividend by two thirds earlier this year, but that like every good wrestling storyline, it's poised for a comeback: "The stock has been unfairly beaten down because the 14% dividend yield was the main selling point for so many investors. Once the market starts pricing the stock based on the value of the company rather than the cash income it gives out, I expect a sizeable rebound."

You can tell us on the World Wrestling Entertainment CAPS page or in the comments section below whether you think it's on the ropes, and then follow along by adding it to the Fool's portfolio tracker to see if it's just engaging in a bit of rope-a-dope. 

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 Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Apple and Madison Square Garden.Motley Fool newsletter serviceshave recommended buying shares of and creating a bull call spread position on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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

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