Stocks of the Week

As any good investor knows, tips are best left for waiters. Ideas, however, are the lifeblood of any dedicated stock picker. Besides the stock-idea fairy, ideas come from a variety of sources, including stock screens, financial news sites, and now, The Motley Fool's CAPS service.

Using a super-secret algorithm, CAPS scans users' existing portfolios of stock selections and serves up a highly rated stock each weekday. Some of these recommendations are similar to stocks already in a player's portfolio, while others may introduce a new area altogether.

As a sample of CAPS' wizardry, here are the five recommendations it gave me last week:

Day

Stock

Market Cap

CAPS Rating (out of 5)

Monday

Navigators Group (NASDAQ:NAVG)

$1 billion

*****

Tuesday

RLI Corp. (NYSE:RLI)

$1.3 billion

*****

Wednesday

ACE Ltd. (NYSE:ACE)

$19.8 billion

****

Thursday

American Physicians Capital (NASDAQ:ACAP)

$417 million

****

Friday

National Oilwell Varco (NYSE:NOV)

$24.9 billion

*****

Data from Motley Fool CAPS and Yahoo! Finance as of Jan. 11.

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 a few of these companies.

Navigating with Navigators
In a rocky market, it's tough to find stocks that are above water, let alone providing exciting returns. Navigators Group's stock has done just that, though, trouncing the S&P 500 with returns north of 25% over the past 12 months. On CAPS, Patrick6k gave a good overview of what there is to like about Navigators:

For starters they have profit margins fatter than that kid who was always the first one out in dodgeball. ... Second, the Big Cahounas own a little over 1/5th of the company as I write this pitch, and [the company is] hauling in [a ton of cash].

Since that June write-up, not much has changed. The company's EBIT margins for the trailing 12 months ending in September are 22%, and 25% EPS growth is expected for all of 2007. Insider ownership is also still notably high, with founder and chairman Terence Deeks controlling more than 16% of the outstanding shares.

The stock obviously isn't as cheap as it was a year ago, but it currently trades at 1.8 times its tangible book value, which is roughly in line with comparable insurance companies. Navigators has been able to do particularly well by leveraging a strong position in the energy and marine markets and building out in other areas, such as specialty lines and professional liability.

Energy wins
While Navigators has exposure to the energy market indirectly though the insurance that it provides, National Oilwell Varco is very directly involved in the industry. Looking at trailing returns from major indexes such as the S&P can be misleading right now, because there is a huge variance in returns from sector to sector. So while financials have been getting slammed and the S&P overall treads water, energy companies -- think Chevron (NYSE: CVX  ) and Exxon (NYSE: XOM  ) -- have been soaring and haven't let up yet. So why National Oilwell Varco? Saunafool makes it pretty simple:

Oil drilling is in a massive growth phase. ... Global growth might ease, but we are only about 3 years into playing catch-up on the capital equipment side of the business. National Oilwell Varco has a long way to go to the upside.

Your turn
But 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 personalized daily picks is much more fun than, say, getting an atomic wedgie from California's Governator.

More CAPS Foolishness:


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