At the racetrack, everybody dreams of putting money on a long-shot horse and winning big.

Investors harbour similar dreams, but most who speculate in stocks would have better luck betting on a sorry-looking nag.

When a stock seems down and out, there's usually a good reason for it. Not every potential turnaround is accurately detected by Wall Street, but selecting from stocks with severe image problems will require courage.

"Trying to cherry-pick the exact bottom of a plunging stock is like trying to catch a falling pitchfork," said James Stack, president of InvesTech Research in Whitefish, Montana, and editor of the InvesTech Market Analyst newsletter. "It's a phenomenal feat when you can pull it off, but a painful one when you miss."

Some stocks lack fundamentals necessary for success anytime soon. For example, investors who bottom-fished in stocks like Lucent Technologies Inc., Cisco Systems Inc. and the "tech washouts" of the late 1990s wound up compounding their losses all the way down, Stack noted.

Investing in long shots should be done only with a portion of an individual's portfolio that he is prepared to lose. After that's been decided, there are potential rewards in dabbling in the unknown.

"When very large investors become interested in a company that's in trouble or even in bankruptcy, interesting things can happen," said George Putnam III, editor and founder of The Turnaround Letter in Boston, who has built a large reputation for patiently investing in the long shots most experts had abandoned.

Here are Putnam's latest speculative bets:

[box] Covad Communications Group Inc. (DVW), a voice and data provider that was a high-flyer in the 1990s. It emerged from bankruptcy and has been "plugging along" but not breaking out. Losses have narrowed and revenues are up.

[box] Revlon Inc., Class "A" (REV), a highly leveraged but strong brand name in skin care and cosmetics that is controlled by investor Ron Perelman. If Perelman can figure how to get the company back on its feet, it has definite prospects.

[box] Vitesse Semiconductor Corp. (VTSS), a supplier to the communication and storage markets, had been performing well enough. However, it was caught up early in the options scandal, its CEO was fired, and its bondholders have put a squeeze on the company. Putnam believes the business now looks better and it appears the firm will settle with bondholders soon.

[box] Delphi Corp. (DPHIQ), the major supplier to General Motors, declared bankruptcy last year and is working on labour issues. Several former executives face Securities and Exchange Commission fraud charges. Distressed-securities funds and private equity funds are interested in Delphi.

An educated guess and study of industry precedence can lead to a long-shot investment.

"We have a stock alert on UAL Corp. (UAUA), the parent of United Airlines that just came out of bankruptcy, which you might call a former long shot," said Ken Kam, co-founder and CEO of Marketocracy Data Services in Los Altos, California, and manager of Marketocracy Masters 100 Fund (MOFQX), up 22 percent the past 12 months. "It could be a short-term investment play but not necessarily a great long-term investment."

Airlines usually emerge from bankruptcy competitive again because they've eliminated debt and renegotiated labour contracts, Kam said. UAL has also benefited lately from increased fares and record load levels.

Last year, Irish biotechnology company Elan Corp. Plc. (ELN) fell from $30 to $3 a share when it had to recall its Tysabri drug for combating multiple sclerosis due to potential side effects. Kam bought the stock at $7, that drug was approved once again, and the stock is now at around $15. The only question is how fast the run-up to its former price level and beyond will be, Kam said.

"Younger investors should have some speculative stocks because they have a longer time horizon and can afford the cyclical swings of the stock market," said James Oberweis, president of Oberweis Asset Management and portfolio manager of the Oberweis Funds in Lisle, Ill. "I define speculative as companies with higher volatility, which translates into higher risk-reward opportunities."

Only consider a long shot if payoff potential is actually higher than that of a less speculative investment, he said.

One Oberweis speculative success is Focus Media Holding Ltd. (FMCN), a Shanghai company that puts flat-panel displays in hotel and office building lobbies. The stock has risen 300 percent since he bought it. Five years ago, he bought Central European Distribution Corp. (CEDC), which has consolidated the Polish alcohol distribution market. Split-adjusted, it has increased from $1.28 a share to more than $23.

"But speculative investments don't always work out well," Oberweis said. "One that hasn't worked out so far is Redback Networks Inc. (RBAK), a maker of high-speed routers, which has gone down from $24 a share to $15."

Lately, with beaten-down pharmaceutical stocks so out of favour, well-known choices such as Pfizer Inc. (PFE) and Merck Co. Inc. (MRK) could be deemed high-visibility long shots even though they've begun to rebound, said Stack.

"Any stock that falls far enough will have a 'dead-cat bounce' at some point that sucks in all the bottom fishers," Stack said. "Waiting for six months of stability is a good idea that has saved us more than once."

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, PO Box 874702, Tempe, Arizona 85287-4702, or by e-mail at andrewinv@aol.com