Stocks of the Week

The idea of supplying customers with recommendations based on past 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 Pirates of the Caribbean 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, 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 uses pi to the 1,745th decimal in the calculations -- is run. It then starts churning out highly rated stocks for each player based largely on their previous selections and the current phase of the moon.

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.

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 things off with some thoughts on Grey Wolf.

Just as oil is hitting new all-time highs, many contract drillers are finding their stocks much lower than just a few months ago. Grey Wolf, along with competitors such as Parker Drilling (NYSE:PKD) and Pioneer Drilling (AMEX:PDC), have all sold off to a significant degree since the highs of the early summer.

The sharp decline has been at the hands of overcapacity of rigs in the North American market and the resulting decline in the dayrates that drilling contractors can charge. But fellow Fool Toby Shute pointed out in early August that the capacity Grey Wolf offers is not the same as the capacity that's flooding the market. He believes that the company's higher-quality rigs, along with its solid balance sheet -- something that many competitors lack -- will give it a significant advantage over time.

CAPS player TelecomJohn is also bullish on Grey Wolf:

[Grey Wolf's poor trading] multiple does not reflect the solid track record of revenue growth and the company's open mind about placing rigs in South America (and in the Gulf of Mexico). That, together with Grey Wolf's use of refurbished rigs and great fleet mobility, makes for a very possible multiple snap back. Grey Wolf's management has proven to be a very shrewd bunch. And they've been defending those great margins for years.

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:

• 5 Dynamic Dividend Stocks
• 7 Surprising 1-Star Stocks
• 7 Top Stock Blogs