Financial Investors' Dream Stocks

Investors are always hunting for the next big stock -- the dream stock whose price increases several times over when the market finally discovers it. It's easy to look back and see what the 10 best stocks of the past decade were. But for my part, I'm more interested in the tools that can help me find tomorrow's greatest companies.

At a time when financial companies are being pounded, great opportunities abound. One tool offers a variety of resources to help with finding tomorrow's financial leaders: Motley Fool CAPS.

CAPS' nifty screener will help us find stocks with:

  • A market cap of at least $100 million.
  • A three-year revenue growth rate of at least 20%.
  • A price-to-earnings ratio of less than 25.

Then the 115,000-plus CAPS members can help us see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

Company

Revenue Growth Rate, Past 3 Years

CAPS Rating (out of 5)

MVC Capital (NYSE: MVC  )

121.2%

*****

Apollo Investment (Nasdaq: AINV  )

87.8%

*****

Allied Irish Banks (NYSE: AIB  )

33.4%

*****

optionsXpress Holdings (Nasdaq: OXPS  )

30.6%

*****

Data and star rankings from CAPS. All data as of Aug. 29.

MVC Capital
Business development company MVC Capital acts a lot like a venture capital firm, but you don't have to be an accredited investor to own shares. MVC invests in small and middle-stage companies with its own money, but like a REIT, it isn’t required to pay taxes as long as it pays out most of its income in dividends.

MVC has also been weathering the credit crunch much better than other financial firms, since it doesn’t rely on cheap debt. In fact, since chairman Mr. Tokarz and his team took over in fiscal 2004, the net assets of the company have nearly tripled. While insider buys alone aren't always a telltale indicator of a great stock, the multiple insider buys at MVC for significant amounts, coupled with this performance, bode well. More than 98% of the 813 CAPS members rating MVC Capital are bullish, too.

Apollo Investment
Another business development company, Apollo Investment, has plowed more than $5 billion into various companies since its 2004 IPO. While other financial players like Citigroup (NYSE: C  ) and Merrill Lynch (NYSE: MER  ) are struggling with the credit markets, Apollo management looks to fill the void and employs a patient yet opportunistic strategy.

Apollo has several options for providing liquidity and new capital, including periodic follow-on equity offerings and its $1.7 billion, five-year revolving credit facility. Investors have little reason not to consider Apollo -- the firm currently pays a dividend that yields more than 12%. More than 97% of the 940 CAPS members rating Apollo Investment expect it to beat the S&P going forward.

Allied Irish Banks
Many CAPS investors like Allied Irish Banks for its healthy growth and diversified markets, as well as its few competitors in Irish banking. Allied recently reported strong growth in customer deposits and even raised its dividend -- something very few banks feel comfortable doing these days. And unlike other banks such as Washington Mutual (NYSE: WM  ) , it’s been able to fund all of its lending activity with customer assets.

Allied has seen its loan book deteriorate, though. However, its average loan-to-value ratio across all property and construction loans (including the riskiest residential development) is a well-protected 71.3%. The underlying quality of the bank’s assets and management give more than 97% of the 1,562 CAPS members rating Allied Irish a reason to be bullish.

optionsXpress
While competitors attempt to go after longer-term buy-and-hold investors, optionsXpress caters to a niche of traders, who often become even more active in volatile periods. The company allows retail investors to trade options, something that many investors have turned to during the current market’s high volatility as a tool to hedge portfolios.

And recent numbers don't look too bad -- the company held its own and increased revenue in its second quarter by 4% year over year, and net income inched higher by 1%. optionsXpress also recently completed an acquisition of a futures broker, Open E Cry, and is also on the hunt for more opportunities. More than 96% of the 1,126 CAPS members rating optionsXpress expect it to outperform the market going forward.

Let 115,000 investors be the judge
The collective wisdom of a huge pool of investors can help give context to a page of numbers developed through a stock screen. But even with an entire community’s worth of qualified opinions acting as the judge, individual investors are still the jury and should perform their own due diligence.

Run your favorite parameters through the Motley Fool CAPS screener. It's totally free, and even fun.

Banks and other financial firms are staples of dividend investors. And we at our Income Investor newsletter service haven't given up on them. Sign up for a free 30-day trial to see what financial firms we're recommending today.

Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns no shares of companies mentioned here and is the author of The Qualcomm Equation. Apollo Investment is a Motley Fool Hidden Gems Pay Dirt selection. MVC Capital is a Hidden Gems recommendation. Apollo Investment is an Income Investor selection. optionsXpress Holdings is a Stock Advisor pick. The Fool owns shares of Allied Irish Banks, which is a Global Gains selection. The Fool's disclosure policy screens the good, the bad, and the ugly.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2008, at 10:34 AM, pondee619 wrote:

    There are 61,600 CAPS players.

    "More than 98% of the 813 CAPS members rating MVC Capital are bullish, too." 98.7% of CAPS members have no opintion on MVC. Only 1.28% of CAPS members rate MVC bullish. Is this a Bullish or Bearish indicator?

    "More than 97% of the 940 CAPS members rating Apollo Investment expect it to beat the S&P going forward."

    1.48% of CAPS players rate AINV bullish. Same question.

    "The underlying quality of the bank’s assets and management give more than 97% of the 1,562 CAPS members rating Allied Irish a reason to be bullish."

    2.45% rate Allied Irish a look.

    "More than 96% of the 1,126 CAPS members rating optionsXpress expect it to outperform the market going forward"

    1.75% approve here.

    My rating is * out of 61618 CAPS players. If we are going to use CAPS for anything other than play, should the opinion or non-opinion of ALL players count for something? Perhaps we should just stop citing CAPS scores on issues.

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