Stocks of the Week

The idea of supplying customers with recommendations based on prior shopping habits isn't all that new. If you've signed on for service with Blockbuster or Netflix, you know about the movie recommendations they hook you up with (mine right now include Planes, Trains, and Automobiles and La Femme Nikita -- does that say something about me?). Shoppers on Amazon.com get a similar slew of suggestions based on their previous purchases.

Investing in stocks may not exactly be comparable to renting a movie or buying a book on Amazon, but with thousands of stocks out there, finding new ideas can often be overwhelming. To help grease the ol' mental machinery, The Motley Fool's CAPS service recently started providing players with daily stock recommendations.

It works like this: CAPS members create a portfolio by rating some of their favorite (and least favorite) stocks. The super-secret stock-of-the-day algorithm -- which I've heard is run by a pack of Ewoks using a computer twice as powerful as BlueGene and uses calculations so complex that they have literally set lesser computers on fire -- is then run. It then starts churning out highly rated stocks for each player based largely on their prior selections and the current position of the Earth's rotation.

To give you a sampling of the kinds of ideas that CAPS is doling out, here are the five recommendations the CAPS supercomputer spit out for me last week:

Day

Stock

Market Cap

CAPS Rating (Out of 5)

Monday

RenaissanceRe Holdings (NYSE:RNR)

$4.1 billion

*****

Tuesday

Darwin Professional Underwriters (NYSE:DR)

$367 million

*****

Wednesday

Horace Mann Educators (NYSE:HMN)

$790 million

****

Thursday

Warnaco Group (NASDAQ:WRNC)

$1.7 billion

*****

Friday

Axis Capital Holdings (NYSE:AXS)

$5.8 billion

***

Data from Motley Fool CAPS as of July 30.

As smart as the CAPS Stock of the Day algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions. With that in mind, I thought I'd kick you off with some thoughts on some of these names.

What's behind Warnaco's name?
Some companies, such as Coca-Cola, wear their brand right on their sleeve. Others prefer to take Warnaco's approach. Behind the unassuming Warnaco name lie a number of very well-recognized brand names, including Calvin Klein, Chaps, Lejaby, Nautica, and Speedo.

This apparel company operates through three primary divisions: sportswear, intimate apparel, and swimwear. Its largest group is sportswear, which makes up just more than 40% of the company's total revenue, followed by intimate apparel and swimwear, which account for 35% and 21%, respectively. Warnaco gets a wide reach for its branded products by working with the largest department stores, mass merchandisers, and membership clubs. Its intimate apparel lines, for example, sell in Macy's, Kohl's (NYSE: KSS  ) , Costco (Nasdaq: COST  ) , and Nordstrom, among others.

Though it doesn't own all of the brand names that it sells merchandise under, it has licensing agreements in perpetuity on many trademarks and notably long terms on others. The Calvin Klein brand for men's, women's, and juniors' jeans in the Americas, for instance, is licensed through the end of 2044.

Last month, my Foolish colleague Brian Pacampara identified Warnaco as one of the top 10 consumer-goods stocks on CAPS. Though the stock has recently picked up its second underperform rating on CAPS as a whole, it still has an unblemished record among CAPS' All-Star investors. One of the CAPS bulls, mauibrain, likes the reach of Warnaco's brands, which he believes "appeal to both ends of the market."

Despite the solid brand portfolio and the near doubling over the past year, the stock still trades at 22 times trailing earnings. If analysts prove to be correct in their projection of 18% growth per year over the next five years, this price could prove to be very reasonable.

Now for the real question: Are you getting your own CAPS Stock of the Day selections yet? If not, what are you waiting for? CAPS is free, and getting your Stock of the Day picks is much more fun than having me get California's Governator to track you down and give you a wedgie. And don't think I won't do it ...

More CAPS Foolishness:

Netflix, Amazon, and Costco are Stock Advisor recommendations. Coca-Cola is an Inside Value selection. You can check out any (or all!) of the Fool's newsletters with a 30-day free trial.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. Matt tried to give the Fool's disclosure policy a wedgie but was overpowered by its incredible might. Don't worry, he learned his lesson.


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