Investing in Your Backyard: Kansas City

There are many good reasons for researching investment opportunities in a certain geographic area. Today, it's all about the Kansas City Metropolitan Area. Straddling two rivers and two states, deep in the heart of America, the very name sings of backyard barbeques and fanatical football flings. But there's plenty of business going on in Kansas City, too.

If you happen to live in the KC area, you already have a few advantages when it comes to evaluating the local market, such as access to local news sources and the word on the street, and a high probability of being a customer or employee of these companies. And if you're not a local resident, you might still want to know whether the weather matches the business climate -- a hot area could be chock-full of undiscovered treasures on their way to greatness.

Without further ado, here are the largest companies headquartered anywhere from Shawnee Mission to the Northland:

Company

Market Cap (Millions)

CAPS Rating

Bulls/Bears

Embarq (NYSE: EQ  )

$7,721

****

17/2

H&R Block (NYSE: HRB  )

$7,543

*

59/32

DST Systems (NYSE: DST  )

$4,139

N/A

10/2

Cerner (Nasdaq: CERN  )

$3,766

***

51/5

Commerce Bancshares (Nasdaq: CBSH  )

$3,444

N/A

5/2



Health-care information specialist Cerner carries a respectable three-star rating, and local communications carrier Embarq adds another star, despite thin coverage. Here's why, according to CAPS player AllStar13913:

[Embarq] has a protected base in rural areas and sports a nice dividend. No one can really estimate what it's worth, since it's a spinoff from Sprint Nextel. Will do well for at least the next couple of quarters.

But there seem to be some undiscovered treasures between Strawberry Hill and the Plaza, too. Two of the area's largest businesses have yet to earn a CAPS rating, and not for a lack of promise. Listen to noname25 waxing poetic about information business DST, for example:

DST has a number of private minority-owned subsidiaries that are difficult to value and thus ignored by the market. Once they, and the public securities, are extracted from the overall enterprise value you have a company trading for approximately 10x FCF to equity that is more properly valued at 20x. Seems 75% cheap. Management appears to agree, buying back more than half the float over the past few years in the open market.

H&R Block may be the best-known company in the area, but it's hardly the most respected around Fooldom. Just listen to my fellow Fool Seth Jayson unloading on the company in CAPS:

Why oh why didn't I short this a while back when it FIRST became apparent that HRB was going to sink because of it's [golf word] loans? I don't think this is the end of the bad loan party for them, or others in this space. To my mind, they DESERVE to be hammered for the lousy lending practices -- the lot of them.

Going down the list
Outside the top 5 market caps, you'll find a handful of banking operations, including mortgage lender Novastar Financial (NYSE: NFI  ) ; a few foodies like Applebee's (Nasdaq: APPB  ) ; and regional railroad Kansas City Southern. Novastar has an impassioned following, thanks to its eye-popping 18.4% dividend yield, but only rates a single star right now. Applebee's is another lone star with disappointing same-store comps, while the railroad sports three stars thanks to a monopoly on rail traffic to a newly opened sea port in Mexico. While the biggest KC businesses offered a few tasty dishes, it looks like slim pickings outside the top echelon in these parts. Looking outside city limits, there's power generator Westar Energy over in Topeka. Four stars adorn its Fool cap, and it looks like a classic post-scandal turnaround story. It's hot in Topeka.

Do you agree? Disagree? Feel free to weigh in on the Kansas City market, Chief -- or on any stocks at all, really -- by joining Motley Fool CAPS and blasting away with your ratings and commentary pitches. And if the Kansas/Missouri border isn't your 'hood, maybe we'll come around where you live the next time.

Further Foolishness:

Fool contributor Anders Bylund just had to get the Topeka line out of his brain. He owns shares of Novastar Financial. You can check out Anders' holdingsif you like, and Foolish disclosure is always red-hot.


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