Oprah's 2005 Stocks to Watch

The screaming, jumping, hugging, hyperventilating lovefest is back.

Yesterday, daytime TV megastar Oprah Winfrey unveiled her list of favorite things for Christmas 2004, heaping thousands of dollars in merchandise upon the lucky teachers in the audience (the show was a tribute to teachers). And I do mean thousands. Among the big-ticket items were a 30" flat-screen LCD television, a new laptop computer, and a new MP3 player. No wonder Oprah called it the hottest ticket of the year.

But I love this show for the stock picks. No, Oprah doesn't actually give away analyst research or fling stock certificates into the stands. It's just that many of her favorite things are supplied by public companies, and some of her past selections would have made for great investments. For example, last year's list featured Research In Motion, which was walloping the market by more than 25% over the summer.

So, since I'll go just about anywhere to get a good stock idea, I planted roots on the couch yesterday to find out who made Oprah's stock picks for 2005. Have a look:

Company Nov. 22
closing price
Current
P/E ratio
EV-to-FCF

Cendant (NYSE: CD  )
Orbitz travel agency arrangements
to Miraval resort and spa in Arizona

$22.23 13.42 4.1
Dell (Nasdaq: DELL  )
30" LCD wide-screen TV, Pocket DJ MP3 player
$40.20 33.22 25.9
Maytag
Neptune top-load washer and drying center
$19.72 65.95 26.9
Movado Group (NYSE: MOV  )
Museum Automatic Arte watch
$18.44 19.45 25.9
Office Max (NYSE: OMX  )
$500 gift certificate
$30.33 16.29 N/A
Sony (NYSE: SNE  )
VAIO S260 notebook computer
$36.01 26.61 N/A
Starbucks (Nasdaq: SBUX  )
$100 gift card
$56.49 59.28 60.5
Williams-Sonoma (NYSE: WSM  )
Designer home bedding
$36.28 24.24 54.8
TOTAL/AVERAGE $259.70 26.56 22
Financial data supplied by Fool.com, Yahoo! Finance, and Morningstar.com

To get a sense of how Oprah's picks stack up against the stock market, consider that data supplier Barra pegs the price-to-cash flow ratio of the S&P 500 at 19.39 while the Oprah portfolio comes in at an enterprise value-to-free cash flow ratio of 22. The portfolio's price-to-earnings ratio also trades at a premium: 26.56 to the S&P's 19.85.

What's all that mumbo jumbo mean, you ask? Simple. Oprah's portfolio of stocks is pricey compared with the average stock out there. That's not necessarily bad, of course. Dell has been premium-priced for some time, yet it has performed well for subscribers of Motley Fool Stock Advisor.

Still, I like bargains, and Cendant may be the pick of this list. Though you should always be wary of companies that trade for cheap -- because it may be for a good reason -- Cendant's EV-to-FCF ratio of four is mouthwatering. The company also trades for slightly under its expected five-year growth rate according to Yahoo! Finance, another positive indicator. And if that weren't enough, Cendant expects to reap $1 billion from its Wright Express subsidiary through a spinoff public stock offering. Not bad.

I know Oprah has been known to induce mass shopping sprees through her book club and favorite things list, but these stock selections simply shouldn't receive the same treatment. If you're interested in Cendant or any of the others, give it some Foolish love: Research it, and work up a valuation. If the stock still meets your criteria for a margin of safety, then by all means buy it.

Just remember, like Oprah, you shouldn't settle for anything but the best when it comes to your portfolio.

For related Foolishness:

Want to be like Oprah? Get generous. Check out the companies we're highlighting in this year's Foolanthropy drive. Every post to our discussion boards adds a little more to your fellow Fools, and to the pocketbooks of our charities. And if you're feeling inspired to get involved in a holiday project to help others, think about joining our band of Foolish elves.

Fool contributor Tim Beyers almost included Oprah's Harpo Inc. on his list of companies he wished were public. He had no positions in any of the companies mentioned at the time of this story. To see what Tim's into and what stocks he owns, check out his Fool profile, which you can find here.


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