3 Stocks That Just Make Sense

"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
-- Warren Buffett

History seems to show that good investing doesn't necessarily mean picking out complex situations and basing your investment thesis on Nobel-level math. In fact, as the recent financial crisis has shown us -- not to mention Long Term Capital Management and many other examples -- too much complexity can often end in calamity.

In an effort to track down some of the companies that may fall into that "fish in a barrel" category, I looked for companies that have shown signs of brilliance. Specifically, I focused on companies with a conservative balance sheet, a forward price-to-earnings ratio below 15, a return on capital above 10%, and a dividend. I've also included the ratings that the Motley Fool CAPS community has given each of these stocks.

Sources: Motley Fool CAPS and Capital IQ, a Standard & Poor's company.

While the three companies above aren't meant to be formal recommendations, they are a good starting point to start some further research. And on that note, let's take a closer look why these potential investments might make a whole lot of sense.

Southern Copper
Has investing in Southern Copper made sense? Sure. The company has built itself into a formidable presence in the copper industry and has produced (very) attractive returns for its investors in the process. But the bigger question may be whether an investment in Southern Copper makes sense right now.

The company just recently took a blow as Peru's government put the kibosh on its Tia Maria project. Tia Maria was expected to produce 120,000 tons of copper per year when fully operational, but it was dogged by protests from residents who feared water and environmental contamination. After protesters had multiple fatal clashes with police, the government pulled the plug.

Of course, while the project cancellation is a net negative for Southern Copper, the fact that 120,000 tons of production won't be hitting the market could be a positive for copper prices -- though I'll bet competitors Freeport-McMoRan (NYSE: FCX) and Teck Resources (NYSE: TCK) are probably doing more cheering about this than Southern Copper.

But on the topic of copper prices, it seems like it could be a toss-up as to whether the gravy train continues. Prices have gone bananas since mid-2010, but there are signs that further upside may be limited -- including a bearish call by Goldman Sachs.

The numbers look good for Southern Copper right now, but investors currently on the sidelines may want to be cautious.

Murphy Oil
This one is pretty straightforward -- Murphy is an integrated oil and gas company. Full stop.

OK, so we can differentiate it by noting that it's a fair deal smaller than most of the oil majors that normally make the headlines -- compare its $14 billion market cap with $414 billion for ExxonMobil (NYSE: XOM) or $114 billion for ConocoPhillips (NYSE: COP). What that means is that there may be more opportunity for Murphy to grow.

Also, filed under "that's interesting," the vast majority of Murphy's gas stations are located in Wal-Mart parking lots. While this may seem attractive since it keeps customers for its gasoline close by, the company's exploration and production business dwarfs its refining and marketing, so the direction of the former will have a much bigger impact on the bottom line.

With a nod back toward Goldman's call on commodities, there's concern that oil won't stay at the lofty levels it's at now, and that would obviously be bad news for Murphy. The company is one worth taking a closer at, but investors may want to tread carefully for now.

Exelon
I've been positive on utility Exelon for a while in CAPS, and my reward for that optimism has been that I've gotten hammered. Since I gave the stock a thumbs-up in CAPS back in early 2009, it's proceeded to lose 22% while the S&P has ripped ahead with a 58% gain. Ouch.

But as I look at the stock today, I'll say that I liked it then (though maybe I shouldn't have liked it quite as much), and I like it even more now. Today, we've got largely the same positives associated with the company's business, while a lower price means you're paying a lower earnings multiple and getting a larger dividend yield.

Of course, I'm far from the only one who's positive on Exelon right now. More than 1,700 CAPS members have given it a thumbs-up, including CAPS All-Star TMFDeej, who had this to say last month:

Well-run utility that pays a great 5% dividend. The fact that the company has nuclear plants has caused Mr. Market to unfairly penalize it in the wake of the horrible Japanese disaster.

A significant rise in interest rates from their current historically low level could make the dividend yield a little less attractive, but that's a risk that I am willing to take.

Getting down to business
Now the CAPS community wants you. That's right, do you think these stocks make sense? Or will they disappoint investors? Head over to CAPS and join the 170,000-plus members already sharing their thoughts on thousands of stocks.

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