These Underdogs Are No Dogs
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.
CAPS Rating (out of 5)
|DirecTV (NYS: DTV)|
|Ultra Petroleum (NYS: UPL)|
Source: Motley Fool CAPS.
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.
Coming in loud and clear
Facing the twin evils of a highly competitive -- and saturated -- subscriber TV market along with a disabled housing industry, it's a wonder satellite TV programming provider DirecTV was able to add any U.S. subscribers at all. Yet it's not helpful that its growth plans are contingent upon wringing greater revenues from each subscriber as opposed to adding more.
Yes, rising ARPUs are beneficial, but only in the context that you can keep adding new ones to the rolls. DirecTV is finding it's getting more expensive to acquire new subscribers, so it's embarking on a plan to squeeze more blood from its turnips. With stiff competition already in place from Dish Network and cable operators, both Netflix (NAS: NFLX) and Amazon (NAS: AMZN) are joining the fray with the hope of persuading viewers to move entirely to streaming content.
That's why it's encouraging to see DirecTV's strong growth in Latin America, where it added a record 590,000 new subscribers. Motley Fool blogger Justin Carley thinks it makes the TV programmer a viable underdog:
The new strategy is to focus the growth on Latin America, where DTV has a dominant, fast-growing market position. The United States will be more about retention with the anticipation of mid-single digit revenue growth in the coming years. I love the move and think it makes the stock an even better choice than when I first mentioned it here.
Add DirecTV to your watchlist to see whether viewers and investors will tune in to it.
Dealing with ultra-low nat-gas prices
Motley Fool analyst Paul Chi see low-cost natural gas producer Ultra Petroleum benefiting from the eventual rise in prices as it recently announced it was slashing its capex budget for 2012 in half. With Encana and Chesapeake Energy (NYS: CHK) following suit, it should help alleviate the supply glut that has ravaged the industry. Ultra, for example, trades more than 53% below its 52-week high, while Encana is down 44%.
The number of active rigs for natural gas stands at a 28-month low, or 720, the fifth straight weekly decline recorded. While that's moving in the right direction -- rigs are down from 906 a year ago -- they're still well above the seven-year low they hit back in 2009, when there were 665 active rigs.
Yet the latest data from the Energy Information Administration shows inventories are still exceeding the five-year averages by a wide margin, all of which points to a long slog yet for natural gas companies. Supply and demand dictate prices will rise as inventories are drawn down and rigs are taken out of service, but it doesn't mean it will happen quickly. While a number of companies are abandoning dry gas for liquids, like Cimarex Energy and Encana, consumption is down as well in comparison to five-year averages.
The same factors Paul Chi highlighted are those that cause CAPS All-Star vitrified to pick Ultra Petroleum to outperform the broad indexes:
Low-cost gas producer. Natural gas may remain cheap for a while, but not forever. Consequently, should be a long-term winner.
Add Ultra to the Fool's free portfolio tracker and give us your thoughts on the Ultra Petroleum CAPS page on when the situation will turn in the natural gas industry.
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.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Amazon.com and Ultra Petroleum.Motley Fool newsletter serviceshave recommended buying shares of Ultra Petroleum, Netflix, Chesapeake Energy, and Amazon.com. 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.