Lennar Corp. (LEN) just can't seem to win much respect on Wall Street. Despite well-known fundamental issues within the housing sector, LEN has tallied a year-to-date advance of roughly 35% -- easily topping the 11.4% gain collected by the S&P 500 Index (SPX).

Wall Street seems less than impressed by this technical outperformance, though. Earlier today, S&P Equity downgraded the stock to hold from strong buy, joining six other analysts who maintain a tepid rating on the shares.

Humble copier company Xerox (XRX) is suddenly the toast of Wall Street. In addition to a bullish Barron's feature earlier this week, the stock garnered a rush of attention from optimistic options players Thursday. Although the security has yet to establish a firm foothold in double-digit territory, it seems that hopes are running pretty high for Xerox.

On Thursday, call volume on XRX surged to 28 times the norm, with roughly 103,000 contracts crossing the tape. Most of the volume was focused on the January 2011 series of options, as one trader closed out a block of 35,000 January 7.50 calls and exchanged them for 35,000 contracts of the January 9 call. By rolling these calls up to a higher strike, the speculator is indicating that he expects additional upside from XRX during the intermediate term.

Hovnanian Enterprises (HOV) is scheduled to take the earnings stage after Wednesday's closing bell, with Wall Street expecting the homebuilder to report a fiscal third-quarter loss of 52 cents per share. This would mark a notable improvement over Hovnanian's year-ago loss of $2.16 per share, but there's no guarantee the company can match analysts' expectations. During the past four quarters, Hovnanian has fallen short of consensus earnings estimates on two occasions.

Accordingly, speculators have been loading up on bearish bets as Hovnanian's quarterly report approaches. The International Securities Exchange (ISE) reports that traders have bought to open 4.64 puts for every call on HOV during the past 10 days, revealing a strong bias toward pessimistically oriented options.

Financial services firm State Street Corporation (STT) is slated to take its turn in the earnings spotlight tomorrow morning. Analysts surveyed by Thomson Reuters are expecting STT to report a second-quarter profit of 93 cents per share, down from $1.04 per share in the year-ago period. The company has a formidable history on the earnings front, having exceeded analysts' per-share profit expectations in each of the past four reporting periods.

However, options players are bracing for a potential post-earnings pullback. During the past 10 days, speculators on the Chicago Board Options Exchange (CBOE) and the International Securities Exchange (ISE) have bought to open 1.32 puts for every call on STT. This ratio ranks in the 81st percentile, indicating that traders are purchasing bearish bets over their bullish counterparts at a faster pace than usual.

Where as my fist pick, Berkshire Hathaway (BRK.B) is a large cap diversified conglomerate, my second, Grubb & Ellis Co. (GBE), is a micro-cap stock of $90 million.

GBE is a network of nearly 130 owned and affiliated offices, providing commercial real estate services to property owners, institutional investors, and tenants. Its 1,800 brokers and some 6,000 affiliated real estate professionals offer advisory and brokerage, property management, construction consultation, and other services.

The company has been devastated by the bursting of the residential real estate market bubble, lost equity value, illiquid capital markets and the still impending concern over the commercial real estate market facing rising vacancies as hundreds of billions of dollars in loans must be rolled over.

As we all know, the market is a fickle mistress -- and I will be the first to admit, she has humiliated me with her indiscretion on many occasions. However, I'm happy to report that my pick of The J.M. Smucker Company (NYSE: SJM) as a "Cheap Stock" for 2009 has not completely blown up in my face (yet).

The peanut butter-based security jumped back on my radar today when I noticed that brokerage firm Janney Montgomery Scott started coverage of SJM with a Buy rating. Not too many analysts are currently following the shares; according to Zacks, the jam giant has garnered just two Strong Buys and one Hold. Any additional bullish initiations could help the stock extend its recent uptrend.

Virtualization specialist VMware, Inc. (NYSE: VMW) is scheduled to report its fourth-quarter earnings next Monday, Jan. 26, after the market closes. Ahead of the announcement, analysts are expecting a profit of 26 cents per share on sales of $516 million. The company has a mixed history in the earnings spotlight; during the past four reporting periods, VMW has matched estimates once, missed once, and surprised to the upside twice.

Prior to next week's release, Wall Street is aligned almost unanimously in the bearish camp. The stock sports 16 Holds and 3 Strong Sell ratings, according to Zacks, compared to just 2 Strong Buys. These skeptical analysts have placed an average 12-month price target of $26.33 on the shares, representing a reasonable 30% premium to Tuesday's closing price.

Elsewhere, short interest represents a whopping 14.6% of VMW's float. This accumulation of bearish bets would take nearly 10 trading days to fully repurchase at the stock's average daily volume. In the event of another upside earnings surprise, the shares could rally as these shorts rush to cover their positions.

Los Angeles-based builder KB Home (NYSE: KBH) is scheduled to report its fiscal fourth-quarter earnings this Friday, Jan. 9, before the market opens. Analysts are expecting KBH to swallow a loss of $1.19 per share, which would represent a marked improvement from the homebuilder's year-ago loss of $9.99 per share.

However, if history is any indication, there's a good chance KB Home's results will fall short of the Street's predictions. The company has disappointed analysts in each of the previous five quarters by reporting wider-than-expected losses.

On the plus side, it doesn't seem that many players on Wall Street are betting on an upside surprise. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open nearly 3 times more puts than calls on KBH. The stock's 10-day ISE put/call ratio of 2.78 ranks higher than 65% of comparable readings taken in the past year, which suggests that bearish sentiment is ramping up ahead of earnings.

China-based Suntech Power Holdings (NYSE: STP) is slated to report its third-quarter earnings results ahead of the opening bell tomorrow, and the solar stock looks particularly vulnerable to a post-report drubbing. Sector peer JA Solar (NASDAQ: JASO) fell to an all-time low last week after offering a weak outlook, while Trina Solar (NYSE: TSL) today lowered its revenue forecast for 2008.

Currently, First Call reports that analysts are expecting STP to report a quarterly profit of 42 cents per American depositary receipt. Suntech has a respectable history in the earnings spotlight, having exceeded the Street's forecast in three out of its past four reports.

On the plus side, it seems as though many brokerage firms have already downwardly revised their expectations for STP. There have been 10 cuts to the firm's average 2008 earnings-per-share estimates, compared to just two increases.

Plus, several analysts have issued bearish notes on Suntech in the past few weeks: Jefferies & Co. cut its price target on November 17; JPMorgan Chase cut the stock from "neutral" to "underweight" and lowered its price target on November 16; Raymond James downgraded STP from "strong buy" to "outperform" on November 13, the same day that AmTech Research slashed its price target; and Deutsche Bank cut the stock from "hold" to "sell" on November 10.

I'm always on the lookout for pearls of investment wisdom -- information on the down and dirty rudiments of securities analysis is important, but the more subjective "investment psychology" material can be just as key to investment success.

In an interview (subscription required) with the Wall Street Journal, Lorenzo Di Mattia, manager of Sibilla Global Fund, a hedge fund, explained that good trades are often painful while bad trades can feel wonderful: "Actions that make us feel good are usually a lot less profitable than the ones that make us feel bad or stupid. The best trades are usually painful."

It makes perfect sense -- we're pack animals, and going with the herd feels good. But it often leads to disaster -- the internet stock bubble, Beanie Babies, etc. Buying the stuff no one else wants can make you feel like a social outcast, but history has shown that that's often a good strategy.

It's a lot like dieting -- the stuff that feels good at the time can lead to a pretty bad-looking body. For more on the science of behavioral economics, check out Why Smart People Make Big Money Mistakes.

It's no secret that compact discs are on the way out as the preferred method for distributing music, and their decline has continued to accelerate. According to Nielsen SoundScan, 500.5 million albums sold as CDs, cassettes, LPs and other formats were purchased last year, down 15 percent from 2006's total.

Including digital music download sales and music videos, music purchases were up 14% from 2006. What should investors be looking at here?

Perhaps paradoxically, I don't think digital music is the way to play this. The fast-growing innovator often lags that declining old-economy company in terms of stock market returns because investor sentiment can be overly negative. For instance, railroad stocks outperformed airplane stocks (and the broader market) by a wide margin, even as railroads lost their status as the major method of travel. The reason? Railroad stocks were beaten down so badly by the headlines about their demise that they became tremendously undervalued.

The music equivalent of the railroad is Handleman (NYSE: HDL), a stock that has frustrated bottom-fishers for years. The company manages the music category for retailers like Wal-Mart, and well-known value investors like Joseph Harrosh and Marty Whitman have accumulated stakes in the company, even as the stock has continued its decline.

The stock trades at a huge discount to its (probably overstated) book value, and has had trouble adapting to changing trends in the industry. But at its current price, it may be worth a look for contrarian investors who aren't afraid to own stocks that other people snicker at.

Yesterday, Robert Shiller of MacroMarkets said "the pullback in the US residential real estate market is showing no signs of slowing down." This followed the S&P/Case-Shiller national home price index falling 0.9% sequentially in the second quarter.

The index is down 3.2% from the second quarter of last year and is at its lowest level since it began in 1987. Robert Shiller went on to say he is worried about your home's value, and that's not good.

As a reminder, Shiller, of Yale professorial claim, correctly called the excesses of the late 1990's stock market. However, while he called the top, he never called the bottom, staying with his bearish bias way too long and never becoming a buyer.

Shiller shifted his focus to real estate in the current decade. Once again, his bearish prognostications proved correct. However, as the real estate market becomes weaker and weaker with the media flocking to his doors, the trained economist appears to be focused on following the downward trend and not attempting to find a point to start bottom fishing.

A new contrarian indicator may be when Shiller hits the airwaves in full force with his bearish views, it could prove to be a good sign that the bottom for the bear market in real estate is near.

In his book The Future For Investors: Why the Tried and True Triumph Over the Bold and New, Jeremy Siegel outlines the paradox of growth: Growth does not necessarily lead to superior returns in the stock market. In January, I wrote a piece called Are newspapers the new railroads?, in which I discussed a fascinating statistic that I found in Siegel's book: Since 1957, railroad stocks have outperformed airlines, trucking, and the S&P 500.

Think about this: If you'd been there back in 1957, which would you have picked as the better investment? You, along with the vast majority of people, probably would have picked airlines. That's why railroads ended up being the better investment. Extremes in market sentiment often lead companies with poor prospects to be undervalued while companies with terrific prospects become overvalued.

How can you tell when this has happened -- when popular opinion has over-shifted against an industry or company? Oftentimes, you'll see a lot of brilliant investors who are unafraid to go against the trend moving in. In an interview with the Wall Street Journal, legendary investor Carl Icahn explained his philosophy this way: "My investment philosophy, generally, with exceptions, is to buy something when no one wants it."

The latest issue of Barron's featured the results of the weekly paper's stock-picking contest for college students. Derek Zoch, a student at Wharton, had a strategy that smacks of classic contrarianism in the tradition of David Dreman. He looked for stocks making the largest moves, up or down, on each day and then bet against them. This strategy (with, of course, a huge amount of luck) led him to a 34.94% gain in six months.

Does this strategy make sense? It might. Jim Cramer has said that the market never rewards the best news and enough, and never punishes the worst news badly enough. But contrarians like David Dreman would argue that it's just the opposite: the stocks that are disappointing investors the most are often the best bargains. And, as Zoch bet, stocks making great gains are likely to be overrated.

Here is a hardcore contrarian strategy that you could try: each day for 2 weeks, buy the biggest % loser on the NYSE, and short the biggest gainer. Hold each stock for six months, and then close all the positions and see if you beat the market. Interestingly, one might extrapolate from Cramer's remarks that his approach could be just the opposite.

The newsprint industry has been one disaster of a sector to invest in. However, as Barron's Andrew Bary pointed out in a contrarian piece on the Bowater Incorporated (NYSE: BOW) and Abitibi Consolidated Inc (NYSE: ABY) merger, this might be a sign this industry is finally bottoming out.

Some relevant stats:

• Bowater shares are down to $23 from a high of $59 in 2000 while Abitibi shares are down from $20 a decade ago to $2.80
• The combined company will be the third largest forest-products company in the US behind Weyerhaeuser (WY) and International The merged company will have 50% market share of the North American newsprint business
• The decline in newsprint demand might have bottomed as demand from emerging markets is beginning to offset the decline in mature markets. Newsprint demand grew 1% last year. However, North American demand decreased 7%
• By 2008, global newsprint demand could increase 2%, according to Citigroup

Citigroup indicates that Bowater's poor first quarter performance might be the bottom for the Canadian-based company and forecasts earnings of $ 1.00 in 2008 jumping to $2.35 in 2009. Citigroup has a target price of $35. Citi also has a $5.00 target on Abitibi.

The merged company also has $2.0 billion of assets it could sell to paydown the $5.6 billion in debt of the combined companies. The merged company will generate revenue of $8 billion.

The newsprint industry is the contrarian of contrarian investments. While most commodities have performed well this decade, this sector has been a disaster. However, it is time to start looking at these two companies. Start listening to conference calls to see if the companies can hit their quarterly earnings targets. If they can, these stocks could have a good run.