Stocks of the Week

As every good investor knows, tips are for waiters. Ideas, however, are the lifeblood of any dedicated stock picker.

So where do ideas come from? Well, besides the stock-idea fairy, they come from a variety of sources such as stock screens and financial news sites. You can also add The Motley Fool's CAPS service to the list. Among the many great features on CAPS is the Stock of the Day, which serves up a new stock idea to CAPS players every day.

It works like this: CAPS members create a portfolio by rating some of their favorite (and least favorite) stocks. The super-secret stock-of-the-day algorithm -- which uses calculations based on the tides and the position of Jupiter's moons -- is then run. It then starts churning out highly rated stocks for each player based largely on their prior selections and the first letter of the last five teams to win major sports championships.

To give you a sample of the kinds of ideas that CAPS doles out, here are the five recommendations the CAPS ENIAC spit out for me last week:

As smart as the CAPS Stock of the Day algorithm is, it's still just an algorithm, so you must look before you leap onto any of its suggestions. With that in mind, some thoughts:

GlobalSantaFe
Last week, the algorithm threw Transocean (NYSE:RIG) at me, so naturally it followed up with GlobalSantaFe this week. Since last week's edition, oil has come back a bit, but oil over $90 is still plenty pricey and will continue to drive business for the drillers. Plus, there may be additional upside based on the scale of the company once Transocean and GlobalSantaFe officially combine -- in fact, a Bear Stearns (NYSE:BSC) analyst recently noted exactly this and upgraded Transocean's stock.

The insurance jamboree
Three of my five recommendations for the week were insurers -- and all three are on the property and casualty segment. Max Capital and EMC are both in diversified P&C insurance and reinsurance, while Allstate focuses largely on the home and auto insurance side.

As an investor it's a good time to be very picky about what insurers to go after. Many insurers -- our three here included -- are trading at mid-single-digit price to earnings ratios, and look very cheap. The industry, however, has found itself recently with excess capacity and that has put pressure on the policy pricing. During an industry downturn like this, it's particularly important to stick with the high-quality insurance names, like Allstate.

Opining in his outperform call on Allstate a few months ago, CAPS All-Star SampsonSimpson said, "No rocket science here. Just a good company with a solid dividend, trading at a discount."

But now for the real question: Are you getting your CAPS Stock of the Day selections yet? If not what are you waiting for? CAPS is free, and getting your Stock of the Day picks is much more fun than having me get California's Governator to track you down and give you a wedgie. And don't think I won't do it.

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