Whether it's the corporate lunchroom, your cubicle, or the local watering hole after work, there are regular places we gather to discuss news, sports or -- if you're like us -- stocks. Here at Motley Fool CAPS, we gather around the virtual water cooler daily to rate stocks and delve into their merits as investments.
Our 130,000-strong CAPS community -- where members give the thumbs-up or thumbs-down to some 5,300 stocks -- has earned its points by seeking out the businesses it thinks will outperform the market. Below we'll take a look at some of the top stocks in the CAPS universe that you're talking about the most and whether you think they'll continue their winning ways.
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Stock
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CAPS Rating (5 stars max)
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No. of Calls
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Outperform Calls
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Allied Irish Banks (NYSE: AIB )
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*****
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2,241
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96%
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Diageo (NYSE: DEO )
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*****
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2,132
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98%
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Lowe's (NYSE: LOW )
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*****
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2,147
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86%
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US Bancorp (NYSE: USB )
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****
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1,963
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92%
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Yum! Brands (NYSE: YUM )
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****
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2,005
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95%
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A tall drink of water
The collapse of subprime mortgages has left us all weary, as if we'd just gone three rounds with Chuck Liddell in a World Extreme Cagefighting match. Are we ready to step into the octagon again with the impending doom of option-ARM and Alt-A mortgage resets that could trigger an even bigger wave of foreclosures?
According to the foreclosure listing service ForeclosureS.com, March saw the number of completed foreclosures surge 44%. And the researchers at RealtyTrac found foreclosure-related filings were up 30% from February of last year. That's also 6% higher than the month before, when it was hoped a bottom had been reached.
Wait, there's more! A report issued by the Treasury Department shows that banks that were the largest recipients of TARP tax dollars have reduced the amount they're lending across all commercial- and consumer-lending categories, as compared to last month. And while everyone had been feeling euphoric over the jump in February's housing starts, they collapsed again in March.
Now that we're all stumbling about punch-drunk, it's hard to imagine that any business as reliant upon the housing industry as Lowe's and Home Depot (NYSE: HD ) can mount any sort of effective recovery on its own. Sears Holdings (Nasdaq: SHLD ) , which couldn't produce positive results even before the current economic slide, may fare even worse.
Lowe's reported a 60% drop in profits for the fourth quarter as sales fell 4% on a 10% drop in same-store sales. While that's better than what Home Depot was able to scrounge up -- it recorded a $54 million loss as same-store sales fell 13% -- guidance for the coming year is at best a preparation for more bad tidings. The one bright spot is that Lowe's does expect to generate a 75% increase in free cash flow of almost $1.5 billion for 2009.
Some investors manage to find a silver lining amid the carnage. Top-rated CAPS All-Star member TSIF, for example, agrees that the recession is still in its early stages, but thinks the rising tide of foreclosures can have a salutary effect on the do-it-yourself warehouses, as banks will need to fix up the homes they acquire from busted homeowners:
We are no where near to coming out of this recession. The uptick in building permits getting everyone excited is an uptick from the all time worse, to the all time second worse...statistics. There are however, enough bank owned homes being auctioned at penny's on the dollar and a few people who can take advantage of the lowered interest rates, that I think LOW and HD are at or near bottom. There are a few bad quarters left, but houses still need repaired, and bank foreclosures rehabbed. I'm going to start with Lowe's and watch Home Depot. Home Depot has a larger dividend, but I believe Lowe's is in the better position to beat the S&P on any slight economic rebounds. P/E of sub 13x while sounding high, is decent for a retailer with decent margins and cash flow.
With an ability to generate significant free cash flow, this CAPS All-Star believes that, at a minimum, Lowe's ought to be able to outperform the market.
Gather 'round
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