3 Stocks That Just Make Sense

"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
-- Warren Buffett

History seems to show that good investing doesn't necessarily mean picking out complex situations and basing your investment thesis on Nobel-level math. In fact, as the current financial crisis has shown us -- not to mention the Long Term Capital Management hedge fund, and many other examples -- too much complexity can often end in calamity.

In an effort to track down some of the companies that may fall into that "fish in a barrel" category, I've turned to The Motley Fool's CAPS community. Using CAPS' stock screener, I looked for companies that have a price-to-earnings ratio below 15, a long-term debt-to-equity ratio below 50%, a return on equity above 12%, and have been highly rated by the CAPS community.

Company

CAPS Rating
(out of 5)

Price-to-Earnings Ratio

Return on Equity

Long-Term
Debt-to-Equity Ratio

National Oilwell Varco (NYSE: NOV  )

*****

7.9

15.5%

7.0%

BHP Billiton (NYSE: BHP  )

****

7.6

39.7%

24.0%

GigaMedia (Nasdaq: GIGM  )

*****

7.0

20.9%

0.0%

Source: CAPS.

These are just three of the stocks that the CAPS screener spit out; you can run the same screen yourself to see the rest of the companies that made the cut. While the three companies above aren't meant to be formal recommendations, they are a good starting point for further research. On that note, let's take a closer look at each company.

The tools to get the job done
Oil big boys like Chevron (NYSE: CVX  ) and Petrobras (NYSE: PBR  ) need companies like offshore driller Transocean (NYSE: RIG  ) to access the oil that they've found. In turn, companies like Transocean need to get their equipment from somewhere. And that's where National Oilwell Varco comes in.

NOV is a one-stop-shop when it comes to capital equipment for the energy patch. On the high end, the company manufactures entire drilling units, but it also offers the consumable parts that are used during drilling -- not to mention repair parts and services.

This is the gorilla of the drilling capital equipment space, and we can safely bet that as long as drilling is taking place, there will be orders headed NOV's way.

The Goliath
Fool, meet the world's largest mining company, BHP Billiton. Don't worry. It may look scary, but it doesn't bite.

Getting the biggest doesn't always mean getting the best, but BHP stacks up very well against smaller competitors like Freeport-McMoRan (NYSE: FCX  ) and Rio Tinto when it comes to areas like profitability and capital structure. Plus, with BHP, not only do you get the giant in the industry, but you really get the run of the natural-resources world -- the company produces everything from copper and iron to oil to diamonds to uranium.

And why might an investor want exposure to metals and other natural resources? Well, although many people are talking about green shoots and a full-blown economic recovery, there are some corners of the economy that still worry me and make me think commodity exposure isn't such a bad idea.

Switching gears completely ...
In a completely different business stratosphere, we come to GigaMedia. This Taiwan-based company offers online games and gaming services in China and throughout Asia.

Like many other stocks, GigaMedia has had a pretty bumpy ride during the recession. Between the fall of 2007 and now, the stock has had a cool 70% lopped off. Members of the CAPS community, however, think the stock will be a bright star going forward, and it currently has a perfect five-star rating.

Why such a feel-good sentiment for GigaMedia? Let's take a look at why CAPS All-Star mopoff gave the stock a thumbs-up late last month:

Online gaming and especially gambling in China, which is popular and growing. Currently undervalued. Very good recent growth and future growth prospects. No debt, plenty of cash. Well-run company: recently got out of the Internet access business and has been making aggressive acquisitions in online gambling and gaming. Low institutional ownership, but not as low as fishier Chinese companies. Strong buy on both CAPS and S&P.

Getting down to business
Now the CAPS community wants you. Do you think these stocks make sense? Or is the community off-base in its faith? Head over to CAPS and join the 135,000 members already sharing their thoughts on thousands of stocks.

Further CAPS Foolishness:

GigaMedia is a Motley Fool Rule Breakers selection. National Oilwell Varco is a Motley Fool Stock Advisor recommendation. Petroleo Brasileiro is a Motley Fool Income Investor recommendation. GigaMedia is a Motley Fool Global Gains pick. Take a free 30-day trial of any of these Foolish newsletters today to get the rundown on these picks (and all the others!).    

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out the stocks he's keeping an eye on by visiting his CAPS page, or you can connect with him on Twitter as @KoppTheFool. The Fool's disclosure policy thinks it's time to retire the name Brangelina. ... Seriously, it's long overdue.


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