Dream Stocks for Financial Investors

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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 not only help me find new stock ideas but also have the resources necessary to evaluate tomorrow's greatest companies.

There is a tool that offers a variety of resources to help with finding tomorrow's leaders: Motley Fool CAPS, a 120,000-member community of investors helping each other beat the market.

We'll enlisted CAPS to screen the financial sector and get the story behind some of the more highly rated stocks. 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 we'll tap the collective intelligence of our CAPS members to 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)

Prospect Capital (Nasdaq: PSEC)

58%

*****

Nasdaq OMX Group (Nasdaq: NDAQ)

51.7%

*****

CME Group (Nasdaq: CME)

36.6%

*****

Banco Santander (NYSE: STD)

26.7%

****

Data and star rankings from CAPS. All data as of Nov. 24.

Prospect Capital
Focusing primarily on energy-related companies, Prospect Capital provides capital to private businesses that need it for growth and expansion. The fund uses a number of different investment structures, but it most often buys secured notes backed by hard assets paying superior returns, unlike risky credit derivatives that led Merrill Lynch to be purchased by Bank of America (NYSE: BAC), or to the U.S. government's rescue of AIG (NYSE: AIG).

With the company's current yield of 15%, many CAPS members recommend following the lead of CEO John Barry and snapping up shares at what they consider bargain prices. It's easy to see why -- its portfolio of investments continues to perform, with net investment income increasing 199% to $23.5 million in its recent fiscal first quarter. In CAPS, more than 97% of the 372 members rating Prospect Capital expect it to outperform the market.

Nasdaq OMX Group
Exchanges such as NYSE Euronext (NYSE: NYX) and Nasdaq have seen volumes soaring lately; the Nasdaq has even set records. Its matched share of U.S. equity volume in October 2008 was more than any other U.S. exchange posted for the 19th consecutive month, and its Nordic exchange is also setting record trade volumes. The company is fueling spectacular growth by also branching into other regions and even options exchanges.

Expecting new regulations placed on many financial firms and markets, the company's CEO sees opportunity ahead for more business in the over-the-counter market. CAPS members largely agree that the future is bright, and more than 97% of the 600 members rating Nasdaq OMX Group expect it to beat the market.

CME Group
Like Nasdaq OMX, exchange operator CME Group has seen strong volume all year. For the first 10 months of the year, CME's average contracts traded per day has increased 10% from last year. CME Group is involved in many aspects of options and futures trading and has generated gobs of free cash over the past five years. The company also has a potentially big opportunity ahead, with the possibility of providing a credit default swaps (CDS) exchange -- one of many reasons more than 94% of the 694 CAPS members rating CME Group are bullish.

Banco Santander
One of Europe's more resilient banks, Banco Santander grew third-quarter earnings by 4.4%, and although it came in shy of expectations, many were relieved that its report contained no major debacles. The company has stayed strong as a result of its focus on retail banking rather than investment banking or the U.S. subprime market. It has also lent cautiously to a broad international market.

With its strong relative position, Banco Santander saw the opportunity to scoop up the remaining 75% of Sovereign Bancorp that it didn't already own. Liking the role of hunter rather than hunted, nearly 97% of the 424 CAPS members rating Banco Santander expect it to outperform the market.

Let 120,000 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 of qualified opinions acting as the judge, individual investors are still the jury and should perform their own due diligence.

Run your favorite factors through the Motley Fool CAPS screener. It's totally free, and we think you'll like the results.

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Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns no shares of companies mentioned here. Prospect Capital is a Motley Fool Hidden Gems PayDirt pick. Bank of America is an Income Investor recommendation. Nasdaq OMX is an Inside Value selection. NYSE Euronext is a Rule Breakers pick. The Fool's disclosure policy screens the good, the bad, and the ugly.

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 November 26, 2008, at 1:36 PM, ochau78 wrote:

    About NASDAQ, you said: "Its matched share of U.S. equity volume in October 2008 was more than any other U.S. exchange posted for the 19th consecutive month."

    Strange when NYSE average daily volume was 4.8 billion while NASDAQ average daily volume was "only" 3.7 billion.

    I must be missing something!!!

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Today's Market

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DOW 10,738.96 -40.21 -0.37%
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NASD 2,374.41 -16.87 -0.71%

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3/19/2010 3:46 PM
BAC $16.88 Down -0.20 -1.17%
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NDAQ $20.98 Up +0.25 +1.21%
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NYX $29.34 Down -0.11 -0.37%
NYSE Euronext CAPS Rating: *****
STD $13.64 Down -0.33 -2.37%
Banco Santander Ce… CAPS Rating: ****
AIG $34.11 Down -0.54 -1.54%
American Internati… CAPS Rating: **
PSEC $12.24 Up +0.07 +0.58%
Prospect Capital C… CAPS Rating: ****

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