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 Batman and Hairspray -- 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 that 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
|
|
|
CAPS Rating (out of 5)
|
|
Monday
|
Cincinnati Financial (:CINF)
|
$6.6 billion
|
***
|
|
Tuesday
|
Allied World Assurance Company (:AWH)
|
$2.8 billion
|
*****
|
|
Wednesday
|
Mercer Insurance Group (NASDAQ:MIGP)
|
$130 million
|
*****
|
|
Thursday
|
Unitrin (NYSE:UTR)
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$2.7 billion
|
*****
|
|
Friday
|
White Mountains Insurance Group (NYSE:WTM)
|
$5.8 billion
|
*****
|
Data from Motley Fool CAPS as of Aug. 3.
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.
Many tasty flavors of insurance
Mirroring what happened in a previous "Stocks of the Week" column, I've found myself once again with five picks from the insurance industry. Though I've expanded my CAPS portfolio recently with some outperform picks on stocks in other industries, such as Whole Foods (Nasdaq: WFMI ) , UPS (NYSE: UPS ) , and Total SA (NYSE: TOT ) , I'm still very overweighted in insurance.
Lately, my bullishness in insurance hasn't helped me in CAPS, as insurers' stocks have sunk on the fears surrounding the mortgage debt markets. The CAPS community as a whole, though, has stayed sanguine on insurance -- particularly the property and casualty and reinsurance segments -- and it's not hard at all to find a five-star insurer on CAPS right now.
Of the group that CAPS recommended to me this week, one insurer caught my eye in particular. In his pitch for the stock, CAPS player brentvoss points out that White Mountains Insurance was founded by industry all-star Jack Byrne. Though Byrne recently retired, he was the longtime chairman and was instrumental in building White Mountains up to what it is today.
For those not familiar with Byrne, he helped Warren Buffett and Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) turn around GEICO in the late '70s. In one of his famous annual letters to Berkshire shareholders, Buffett wrote: "Jack Byrne then joined GEICO as CEO and, almost single-handedly, saved the company by heroic efforts." Berkshire is also currently an investor in White Mountains.
Between 2001 and 2006, White Mountains has delivered stable growth that has more than doubled its book value per share. Over the same period, its stock gained almost 60% on top of an annual dividend.
The company also hasn't been shy about making acquisitions to help boost growth. Back in 2000, it acquired online insurance provider Esurance, a direct-to-consumer provider that has grown its number of policies in force from 43,000 in 2002 to 370,000 by the end of 2006.
Despite all of this, White Mountains currently trades at 1.4 times its book value, which is on the cheaper end of comparable insurers -- some of which trade at over 2 times book. If the stock continues to sink, it could soon hit the threshold of being a downright bargain.
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:
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. Netflix, Amazon, Berkshire Hathaway, and Whole Foods are Stock Advisor recommendations. UPS and Total SA are Income Investor picks. Berkshire Hathaway is also an Inside Value selection. 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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