These Underdogs Are No Dogs

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Short-sellers and hedge-fund operators 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)

valuemoney99.99Hasbro (NAS: HAS) *****
bbmaven100.00Under Armour (NYS: UA) ****

Source: Motley Fool CAPS.

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 as the launching pad for further research.

Searching for a solution
Prior to being acquired by Disney (NYS: DIS) , comic-book-action-hero headquarters Marvel was a multimedia powerhouse, turning its superheroes into movie stars, TV shows, and toy figures for mass consumption. The incredible success enjoyed by Marvel inspired Hasbro to pursue the same goal, but from the vantage point of a toymaker.

Hasbro owns some of the best known and loved brands in toys, including Transformers and G.I. Joe. Watching Marvel, it lit on the idea that it could transform them into hits too, and the global juggernaut the three Transformers movies became - with almost $2.7 billion in collective worldwide box office gross -- underscores the sound thinking behind the move.

Now the toymaker also owns Discovery Kids, a TV channel with a mix of in-house produced and broadcast content, that provides a platform for further merchandising even as it reinvents classic toys around new themes. The Nerf brand has blossomed from a sleepy, squishy football into a fast-moving growth engine. Magic: The Gathering, My Little Pony, and a plethora of board games add to the potential.

But there are risks. Hasbro has a seven-movie deal in place with Comcast's Universal Studios and there were originally plans to produce movies based on brands like Clue, Monopoly, and Ouija, but they ended up backing out (they are, however, releasing Battleship soon). Hasbro says one way it's not following Marvel is it won't produce the movies without the financial backing of a partner.

With JAKKS Pacific offering up poor earnings and Hasbro's own preannouncement a disappointment, it remains to be seen whether Mattel (NAS: MAT) will follow suit when it reports next week. CAPS member astros428 believes Hasbro reached an inflection point.

Fundamentals intact, good valuation, dividend growth, almost a duopoly in the toy industry along with Mattel. It's currently sitting right above its 52-week low. Solid buy.

It's all fun and games on the Hasbro CAPS page. Add the stock to My Watchlist and grab a bag of popcorn to see how it plays out.

Taking stock of inventory
We might be enjoying the respite from bone-chilling winters this year, but the unseasonable weather is hampering Under Armour's ability to gain control of its inventory problems. Though the gap between revenue growth and inventory narrowed in the latest quarter, rising "only" 51% compared to a 38% jump in sales, the warm weather stymied sales at outlets like Dick's Sporting Goods and The Sports Authority. Clothes continue to pile up and inventory has more than doubled over the past two years, compared to a 72% rise in revenues.

Where Under Armour is gaining traction is in taking the game to Nike (NYS: NKE) in footwear. The Fool's Robert Eberhard was looking for the apparel maker to meet or exceed the 43% growth rate in footwear sales it has been achieving thus far as a sign it was assailing the massive 95% market share Nike owns in the space. It did indeed come in at 43% for the year, suggesting cracks may be forming in Nike's foundation, though I wouldn't expect it to crumble anytime soon.

CAPS member Minnesnowtan thinks Under Armour still got game, as a competent management team can help ride out the rough spots.

The momentum appears able to support solid growth for at least the next couple of years, and I think management is capable of continuing to hone its competitive edges to run circles around the average.

Add Under Armour to the Fool's free portfolio tracker and see whether it can run away with the new footwear strength.

There's no need to fear ...
Underdogs often strike strongest 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 Dupreyowns shares of Nike and Hasbro, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Under Armour and Dick's Sporting Goods.Motley Fool newsletter serviceshave recommended buying shares of Walt Disney, Under Armour, Mattel, Hasbro, and Nike; and creating a diagonal call position in Nike. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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