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.
Oracle (NAS: ORCL)
Gran Tierra Energy (NYS: GTE)
Silvercorp Metals (NYS: SVM)
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 the launching pad for further research.
Searching for a solution
Considering the lump of coal enterprise software giant Oracle put into the market's stockings just before Christmas, there's little wonder why its stock tanked. Revenue increased just 2% in the quarter, marking the first time in a decade it had missed analyst earnings expectations. Worse, though, was that it missed its own internal projections and expects the fourth quarter to be weak, too.
Yet there were encouraging signs in the report, too (no, really!). New software and hardware products did well, beating out "commoditized" Intel (NAS: INTC) -based servers while CEO Larry Ellison noted a victory against Cisco (NAS: CSCO) due to Oracle's cost performance and also singled out a performance advantage over IBM's (NYS: IBM) pSeries. And the market spanked Oracle so hard free cash flow now trades at less than 10 times its enterprise value, making it exceptionally cheap.
Highly rated CAPS All-Star joryko says the enterprise software king looks cheap across numerous metrics: "Forward P/E of 10, PEG at .88, and a drop of around $5 due to weak earnings. Count me in, they'll be around for the long haul and will only be getting better."
Add Oracle to your watchlist and see if it's able to prognosticate future growth again.
Inquiring minds want to know
Canadian oil explorer Gran Tierra Energy is looking for higher production levels next year that can reverse the misfortunes of 2011, such as the dry hole it drilled in Colombia and a series of production declines at some of its more mature wells. Yet with plans to be a nonoperating partner with Statoil off Brazil's shores, it's looking for a better future.
Gran Tierra has assets across South America and its $367 million new capital spending plan envisions most of its activity will occur in Argentina, where 13 wells will be drilled, followed by 11 wells in Colombia, two in Brazil, and one in Peru.
With 94% of the CAPS members rating Gran Tierra marking it to outperform the broad market indexes, it seems apparent they believe it will strike oil more often than run dry. Let us know in the comments section below or on the Gran Tierra Energy CAPS page whether you think management can be successful in its endeavors, then add the driller to your watchlist to see how it plays out.
Can't touch this!
Last week, Deer Consumer Products (NAS: DEER) put out a pair of press releases highlighting the fighting stance it has taken against short-sellers like Alfred Little that have issued disparaging reports in an attempt to drive its stock lower.
Silvercorp Metals has been a victim of this alleged scurrilous reporting and it seems to have taken a page from Deer's playbook, releasing a note last week announcing that a criminal investigation has been opened by Chinese law enforcement authorities to look into the articles, as well as highlighting some curious behavior at some of its offices.
Silvercorp spent $1.5 million for an internal investigation that (not surprisingly) cleared it of wrongdoing. It should let that suffice and tend to its knitting, or silver mining, and let its performance prove the short-sellers wrong.
If the reports are demonstrably false, then time will bear this out. But the ongoing effort to manage by press release appears counterproductive and makes the companies seem more concerned with how things appear than how they are. With a monstrous runway before silver miners everywhere, Silvercorp Metals would do better to concentrate on the task at hand and let the market tend to the stock price.
CAPS All-Stars have enough faith in its future that 91% have rated the silver miner to outperform the market. You can tell us on the Silvercorp Metals CAPS page or in the comments section below if you think, as I do, that it's worried too much about what its stock price is. Follow along by adding it to the Fool's portfolio tracker.
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 thisarticle was published Fool contributorRich Dupreyowns shares of Intel and Cisco Systems, 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 Cisco Systems, Intel, Oracle, and International Business Machines. The Fool has created a bull call spread position on Cisco Systems. The Fool bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel, Cisco Systems, and Statoil and creating a bull call spread position in Intel. 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.
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