The Best Stocks Right Now

It's been 15 months since we began tracking "The Best Stocks Right Now" with Motley Fool CAPS, the Fool's free online investing community. Amazingly, our CAPS community has nearly quintupled since last January; it now has more than 96,000 investors.

We've highlighted some winners in that time, like Leucadia National (NYSE: LUK) and W&T Offshore (NYSE: WTI), which are up 66% and 25%, respectively, in the year since they appeared.

Back to the present
Since that article last April, it's been a rough-and-tumble year for the market, to say the least. The subprime crisis and credit crunch continue to wreak havoc on mortgage-related companies like Freddie Mac and, most recently, Bear Stearns.

Things may appear bleak, but as Mr. Cramer says, there's always a bull market somewhere. In unsure markets like this, however, the bulls can be more difficult to find. That's where CAPS can help. CAPS players rate stocks to either outperform or underperform the market going forward, and the players themselves are rated based on their performance.

Here's this month's list of the top-rated five-star stocks on CAPS.

Please bear in mind that these are not formal recommendations. Instead, I offer this list as a jumping-off point for further research. In fact, researching five-star CAPS stocks such as these has proved to be an effective tool for investors.

Welcome back, small fries!
Even though the Russell 2000 index remains about 20% off its 52-week high, that hasn't stopped CAPS investors from piling back into munchkin land -- fully nine of the top 10 stocks this month are capitalized south of $2 billion.

Does this mean small-cap stocks have finally hit bottom? If so, now might be a great time to search for the stocks that could end up being some of the best of the next 10 years.

The iron horse chugs along
There's one small cap that may not make it onto that particular list because of its larger-than-average size, but is still worth researching: Wabtec. Short for Westinghouse Air Brake Technologies, Wabtec is a supplier of, among other things, locomotives, components, and technology to railroad freighters like Norfolk Southern (NYSE: NSC) and metro transit systems like New Jersey Transit.

Growth catalysts abound for Wabtec, including:

• Greater use of railroads in freight transportation: With high gas prices and a commodities boom, importers and exporters have been using the more fuel-efficient railways to transport goods across the continent. This has resulted in increased demand for locomotives, freight cars, and other related services that Wabtec provides.
• Growing demand for rail-based regional transit: High gas prices and urban congestion have turned more commuters away from the road and toward the rails; these factors have also prompted federal, state, and local governments to push for improved and more extensive light rail systems.

All of this is great news for Wabtec, which is responding to these secular shifts by expanding its international operations and seeking strategic partnerships and acquisitions. Since 2002, for example, Wabtec has reduced its sales exposure to the U.S. market from 76% to 60% and is currently targeting "U.S.-style" rail systems like those in India, China, and South Africa for further expansion opportunities.

Financially, Wabtec shows a strong balance sheet with $235 million in cash versus just $150 million in long-term debt and an interest coverage ratio above 10. The majority of its cash flows are reinvested in business growth -- oddly enough, the company has paid the same $0.01-per-share quarterly dividend since 1996, resulting in a miniscule payout ratio of 1.8%. Return on equity has also increased over the past few years, growing to 20.1% last year from only 11.4% in 2004.

CAPS investors are justifiably smitten with Wabtec -- 208 of the 210 investors who have rated the stock believe it will outperform the S&P 500. One such bull is hondo928, who had this to say about Wabtec in December: "Good valuation and growth, yet the stock has failed to move, all that means is that the valuation gets better and [there] are even more reasons to buy."

Wabtec has the wind at its back right now and is trading with a reasonable PEG ratio of 1.2. Bottom line: Wabtec deserves a spot on your watch list.

Learn what CAPS investors are saying about Wabtec by heading to its CAPS page. If you'd like to voice your opinion about this stock -- or any stock, for that matter -- join the Motley Fool CAPS community now and make your voice heard.