Oprah's Stock Club

She's baaaaack.

The screaming, hugging, delirious lovefest that is the annual airing of talk show diva Oprah Winfrey's "favorite things" made its appearance last Monday. And I'll admit, it was a touching show. Oprah decided to honor a studio full of volunteer relief workers who spent days and weeks helping those displaced by Hurricane Katrina. There were many powerful stories, including one of a man who sold his tickets to see his hometown Chicago White Sox win the 2005 World Series.

In Katrina's wake: gifts!
Such generosity must be rewarded, of course. And it was -- in style. Oprah rolled out a smorgasbord of gifts for the rescue workers, and as usual, a number of public companies were behind the goodies. Here's an abbreviated list:

Company

Stock price
as of midday
Nov. 23

Current P/E ratio

Market cap-to-FCF ratio

Apple (Nasdaq: AAPL  )
Video-enabled iPod

$67.11

43.07

27.84

Deckers Outdoor (Nasdaq: DECK  )
Ugg Australia "Uptown" boot

$20.67

9.19

N/A*

Nike (NYSE: NKE  )
Free 5.0 iD running shoes

$87.68

17.97

25.33

Polo Ralph Lauren (NYSE: RL  )
The "Oprah" sweater

$54.17

22.59

24.31

Research In Motion (Nasdaq: RIMM  )
BlackBerry 7105T

$66.28

39.41

42.16

Sony
VAIO FJ notebook computer

$36.69

38.79

60.67

United Parcel Service (NYSE: UPS  )
Delivery service for all of Oprah's gifts

$79.22

24.15

23.13

Williams-Sonoma (NYSE: WSM  )
Croissants

$43.51

24.85

80.92

TOTAL/AVERAGE

$455.33

27.50

35.55

Financial data supplied by Capital IQ, a division of Standard & Poor's, and Yahoo! Finance.
*Deckers reported negative free cash flow for the prior 12 months.

A look in the rearview mirror
As I said last year, I really love this show for the stock picks behind the companies supplying the gifts. Oprah's 2004 portfolio didn't turn out all that well, though: It was down 14% over the prior 12 months. The S&P 500 gained 6.6% over the same period.

The big loser among last year's selections was Motley Fool Stock Advisor pick Dell, which at the time was premium-priced at more than 33 times earnings and more than 25 times free cash flow. It shed 25.4%. Ow.

The big winner, interestingly, gets picked up for this year's list as well: Williams-Sonoma. Despite entering last year's portfolio at a heady 54 times FCF, the cookware retailer posted a market-trouncing 18.6% gain. Three of the eight Oprah picks gained, while three lost. Two spent the year jogging in place: Movado and Office Max.

And this year?
I'm less enthusiastic about this year's portfolio. Don't get me wrong -- the gifts are great. They're all premium products. Unfortunately, most of the companies behind them carry premium prices when it comes to their stocks. Take Research In Motion, for example. A federal judge could reinstate an injunction against that company's BlackBerry devices any day now, yet the stock trades for a delusional 40 times earnings. Ewwwwww.

Moreover, the portfolio is premium-priced when compared with the overall market. Data provider Barra shows the S&P 500 trading at just above 18 times earnings and free cash flow. Oprah's picks, by contrast, trade for better than 27 times earnings and more than 35 times free cash flow. Gulp.

Are there any bargains in the bunch? That's difficult to say without a lot of further analysis, but at least one is showing a propensity to churn out cash while growing earnings: Polo Ralph Lauren. The clothing maker is using its famous brand to create a financial advantage. Take margins, for example. It boasts some of the industry's best gross and operating margins, which probably helped the company smash expectations in its most recent quarterly earnings report. Yet Ralph Lauren's stock price compared with its growth prospects -- a measurement sometimes called PEG -- is roughly in line with its similarly sized but slower-moving competitors, including Liz Claiborne. And that may mean there's more upside in the shares.

Watch Oprah, but do your homework, too
I know Oprah has been known to induce mass shopping sprees through her book club and "favorite things" list, but this so-called stock club simply shouldn't receive the same treatment. If you're interested in Ralph Lauren or any of the other picks, 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.

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 the pocketbooks of our charities.

Deckers is aMotley Fool Hidden Gemsrecommendation.

Fool contributor Tim Beyers' favorite things include veal parmesan and a good hockey game. Yeah, we don't get it either. Tim didn't own stock in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.


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