Are Netflix and RIM Underdogs -- or Just Dogs?

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Short sellers and hedge funds may be shadowy, but sometimes, they're 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.

Today I'm looking at two stocks that have lost three quarters of their value, and carry low, one- and two-star CAPS ratings -- highlighting their underdog status against the market averages. Yet, in both cases, Netflix (NAS: NFLX) and Research in Motion (NAS: RIMM) recently received the thumbs up from at least one All-Star member with an "underdog" label. 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.


Of course, not every short sale goes as planned, which makes shorting a risky proposition.  Stock prices can be irrational longer than you have money to stay in the game. And you don't want to end up with fleas by lying down with dogs until you do your homework.

Pretty unsocial
It was a pretty big vote of confidence in a beaten down stock when Netflix CEO Reed Hastings dumped $1 million to scoop up shares at market prices. Except, he was buying stock in Facebook (NYS: FB) , and not shares of his own company.

Sure, Hastings still owns a huge chunk of Netflix stock, some $62 million worth, so it's nothing to sneeze at, and he does sit on Facebook's board, meaning he does have an interest in its well-being. Yet, investing is not anything if not trying to maximize returns, so you don't necessarily plunk down $1 million for a feel-good ego boost. Hastings may have felt the need to diversify. Even so, as investors, you want to put your money in the stock you think will bring you better returns.

While business is booming overseas -- Netflix hit one million subscribers in the U.K. and it's spreading its service into the Nordic region -- analysts believe it won't be enough to offset the problems of slowing subscriber growth domestically. CAPS member TMFFischer will make "Netflix the AOL of online streaming," when he considers the plethora of streaming options coming to a TV screen near you.

Let me know in the comments section below if you think Netflix is a dog riddled with fleas because of growing domestic competition, or whether international markets provide enough opportunities to compensate.

A raspberry
Seemingly facing even fewer opportunities than the movie streaming service, Blackberry device maker Research in Motion must confront a dwindling market presence and the possibility that it will soon no longer exist. Analysts may be looking forward to the Blackberry 10 operating system, and calling the QNX-based OS a potential game changer, but it doesn't appear likely it will make much of a dent in the stranglehold Google and Apple (NAS: AAPL) currently have in the smartphone and tablet markets. Worse, the system won't appear until the first half of 2013 meaning it will fall further behind, as new iterations of the iPhone hit soon, and Samsung's Galaxy 3 gains more adherents.

RIM currently has a 2.2% share in tablets, and less than 11% in smartphones, a figure that continues to drop. The handset maker warned investors that the next few quarters would be ugly, and there's still the possibility someone will acquire it. Like Nokia (NYS: NOK) , it has a powerful patent portfolio that could be worth more than the phones it makes, and there's the possibility it could spin off a division or two.

I agree with ERA2100 that whatever BB10 turns out to be, it's "too little too late," and it will be buried by both Android and iOS. So I've rated it to underperform the market on CAPS. But does that put this underdog in the minor leagues? Give me your view in the comments box below on what you think is the right path to follow for Research in Motion.

There's no need to fear...
Some consider Netflix a central player in the global war between new age entertainment services. Is now the time to jump in? To get you up to speed on this important stock, the Motley Fool has created a brand-new premium report on Netflix. Grab your copy right now to enjoy a full year of free updates.

The article Are Netflix and RIM Underdogs -- or Just Dogs? originally appeared on Fool.com.

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Netflix, Apple, Google, and Facebook. Motley Fool newsletter services have recommended buying shares of Netflix, Google, Facebook, and Apple. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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