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)
First Solar (NAS: FSLR)
Silver Wheaton (NYS: SLW)
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.
Don't get burned
The chips are stacked decidedly against solar-power shop First Solar, which reported quarterly returns that fell short of analyst expectations, offered up lower revenue guidance, and said it would suspend some operations as it sought to retool its operations. Oh, and it's also under SEC investigation for violations of Regulation Fair Disclosure. Its shares are down 15% for the week, 30% for the past month, and 80% for the last year. Yeah, you could say it's sitting behind the eight ball.
The company leaked to an analyst that its chances were slim at best of gaining a DOE loan for its Topaz solar farm it subsequently sold to Warren Buffet's MidAmerican Energy in the wake of the conga line of bankruptcies by green-energy companies that received government funding. While it issued a press release the next day, perhaps realizing it had crossed a line, the leak was enough to trigger an investigation.
Another project, its Antelope Valley solar ranch, is also under the gun because its sale to Exelon (NYS: EXC) is predicated on its getting DOE financing. If it doesn't get the loan, First Solar will have to repurchase the farm for $75 million and try to resell it. But its finances have been based on generating revenues from the sale, much as it is with MidAmerican, so buying it back would throw a real wrench into its operations. First Solar has had to renegotiate to have deadlines extended, and Exelon's agreed to push back the deadline once again, until April.
With quality control issues cropping up -- costing First Solar over $125 million last quarter in additional warranty reserves -- CAPS member PuddinHead42 says it's time to get our of the solar specialist.
First solar not only had terrible earnings, and it is having major quality problems. Reports from Germany indicate far too many module replacements on installed projects. This means repair cost and grave damage to reputation. Banks will stop loaning to 20-year projects. Bail.
Add First Solar to your Watchlist to see whether it burns up or somehow gets out of the sun.
Silver thread, gold needles
When Congressman Ron Paul held up a silver coin at Fed chairman Ben Bernanke's congressional testimony the other day, he noted that in 2006 it would've bought four gallons of gas, while today it can buy more than 11 gallons. "That's preservation of value," he said.
Although precious metals pulled back after Bernanke failed to directly suggest a new round of quantitative easing and gave an upbeat outlook on the economy, gold and silver will likely get new opportunities to run again. After all, Europe is pumping massive amounts of liquidity into its markets and despite assurances to the contrary, the economy -- both domestic and global -- remains extremely weak.
That makes precious metals an attractive investment going forward, and silver-stream specialist Silver Wheaton is perhaps best situated to capitalize on the coming inflationary bender. Investors will benefit as well, since its newly established dividend policy of distributing 20% of cash from operations offers a chance to cash in on rising silver prices. With it predicting a huge 70% increase in silver production by 2015, you ought to be able to profit from Silver Wheaton, but miners like Endeavour Silver (NYS: EXK) and Great Panther Silver (ASE: GPL) could help you make some serious coin as well.
Particularly with silver's historical valuation to gold so out of whack, CAPS member STORMSTOCKER sees Silver Wheaton soaring.
Silver has maintained a 1/16th value of the price of gold, and right now it is 1/40th or less ... It's gotta get back to historical averages with time.
Add the streamer to the Fool's free portfolio tracker and give us your thoughts on the Silver Wheaton CAPS page on whether silver will continue to allow us more fill-ups at the gas station.
There's no need to fear...
Underdogs often do best with their backs against the wall. Still, it takes more than a few All-Star picks and reading a quick paragraph to make good 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 Great Panther Silver, 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 First Solar.Motley Fool newsletter serviceshave recommended buying shares of Exelon and First Solar and creating a write covered strangle position in Exelon. 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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