Top-Rated Stocks Trouncing the Market

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No one has perfect foresight, but let's be honest: The market is full of people who, as Oscar Wilde would say, know "the price of everything and the value of nothing." Far too often -- over the past year, especially -- investors have been pitched sensational stock recommendations, only to be left high and dry as shares crumble.

I summoned our Motley Fool CAPS community to point out a few four- or five-star stocks that have been going gangbusters in recent months. Some are still bargains; others are getting ahead of themselves.

While not formal recommendations, these three-month bloomers caught my attention:

Company	13-Week Price Change	Recent Share Price	Forward P/E Ratio	CAPS Rating   (out of 5)
American Eagle Outfitters (NYSE: AEO)	38%	$19.62	19.24	***
Eaton (NYSE: ETN)	34%	$63.89	21.51	****
EMC (NYSE: EMC)	29%	$18.20	17.01	****
Foster Wheeler (Nasdaq: FWLT)	52%	$33.52	13.15	*****
Taseko Mines (NYSE: TGB)	55%	$2.77	N/A	*****
Under Armour (NYSE: UA)	33%	$31.04	32.33	****
Walgreen (NYSE: WAG)	35%	$40.37	14.68	****

Data from Motley Fool CAPS, and Yahoo! Finance as of Oct. 19.

You can rerun the CAPS screen I used by clicking here.

A closer look at Eaton
Industrial manufacturer Eaton has been on a rampage lately. After reporting better-than-expected earnings, shares jumped another 5.7% yesterday. How much longer can shares continue their upward trek? No one knows, but we're not afraid to throw out a few guesses.

First, know that Eaton's gains are purely a function of things becoming "less bad." While the recent earnings report got investors jazzed, results were still devastatingly bad compared with last year:

Segment	Q3 2009 Sales	Q3 2008 Sales
Electrical Americas	$843 million	$1billion
Electrical Rest of World	$646 million	$893 million
Hydraulics	$418 million	$638 million
Aerospace	$394 million	$469 million
Truck	$401 million	$620 million
Automotive	$326 million	$446 million
Total	$3 billion	$4.1 billion

Yep: Every division saw a serious drop in revenue, leading to a 26% drop in overall net sales. Cost cuts provided most of the fuel for earnings' good impression. "The results reflect the impact of the substantial enterprisewide reductions in costs we have enacted during the past year," says the company's press release.

That's awesome for near-term earnings, but you can't cut costs forever. The intrinsic health of Eaton's business units is still quite bad. There's no hiding that.

This is only useful to point out in light of Eaton's valuation. Shares currently trade at fully 21 times next year's average analyst earnings estimates. That might be reasonable if final demand for its products were set for a major rebound -- and it may be -- but there's scarcely any sign of that happening just yet. Indeed, management's guidance calls for fourth-quarter earnings per share between $1 and $1.10. Annualized out, that would still put shares at 16 times earnings -- not dangerously expensive, but nothing close to a bargain, and still not reflecting that expense reduction is the only thing filling Eaton's gas tank.

This said, my view of Eaton closely resembles that of CAPS member alphaseeker4, who wrote earlier this month: "Great Company, but end markets are very poor and expectations are too high at current price..wouldn't be surprised if they miss earnings numbers badly." Earnings didn't disappoint, but expectations still seem uncomfortably high, especially while something as fleeting as cost-cutting holds up the shop.

There are good, cheap stocks in this market. At these prices, Eaton ain't one of 'em.

Your turn to chime in
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