"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, too much complexity can often end in calamity.
In an effort to track down 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 10%, and a high rating from the CAPS community.
|
Company
|
CAPS Rating
(out of 5)
|
Recent
Price-to-Earnings Ratio
|
Return on Equity
|
Long-Term
Debt-to-Equity Ratio
|
|
Yingli Green Energy (NYSE: YGE )
|
****
|
14.2
|
14.0%
|
40%
|
|
Johnson & Johnson (NYSE: JNJ )
|
*****
|
13.3
|
27.5%
|
18%
|
|
Flowserve (NYSE: FLS )
|
*****
|
11.6
|
27.5%
|
34%
|
Source: CAPS.
These are just three of the results that the CAPS screener spit out, but you can run the same screen to see full, updated results. While the three companies above aren't meant to be formal recommendations, they are good starting points for further research. And on that note, let's take a closer look at them.
The solar promise
With the Suntech Power (NYSE: STP ) IPO back in December 2005, investors were introduced to the idea that a company producing solar equipment could also deliver profits for shareholders. Since then, though, the market has been rushed by a crowd of solar companies including Trina Solar, First Solar (Nasdaq: FSLR ) , and Yingli Green Energy.
As the solar bloc increases its collective manufacturing capacity, the group is facing increased competition, not to mention the headwind of lower energy prices. But many of these solar companies are succeeding despite the challenges. In mid-August, Yingli reported some relatively positive numbers as a 72% sequential increase in module shipments propped up the top line, while the company is hoping that a cost-containment program will help drive profits down the road.
While the company's thin operating profitability in relation to its debt obligations is cause for pause, the CAPS community has taken a pretty positive view of the stock and given it a four-star rating.
Stable and strong as ever
Wild, beaten-up stocks like Fannie Mae (NYSE: FNM ) and AIG (NYSE: AIG ) could be featured on the next "Stocks Gone Wild" video for their recent performance, but the risk involved in these stocks means that even if you decide to take a flyer, they shouldn't constitute the core of your portfolio.
As some of my fellow Fools recently pointed out, even with a lot of question marks still plaguing the economy, there are some sectors that stand out as good bets for investors focused on the long term. One of those sectors is health care, and though reform looms large, it seems hard to go wrong with one of the sector's kingpins, Johnson & Johnson.
The CAPS community seems to agree on the prospects for J&J. Nearly 12,000 CAPS members have rated the stock an outperformer, versus just 415 who think it will underperform the S&P 500 index.
Go with the flow
As the company's name implies, Flowserve is all about the flow. Specifically, the company sells products such as pumps and valves that control the flow of liquids in industries like oil and gas, power generation, and water. The company has a broad geographic diversification, with just 35% of its 2008 revenue coming from North America.
As with J&J, CAPS members have slapped a perfect five-star rating on Flowserve. What makes these folks so positive that Flowserve's stock will outperform the rest of the market? Let's take a look at what CAPS All-Star WhiskeyGirl wrote back in June:
It might be a boring pick but you have to love the opportunities that global infrastructural spending will create for this company in the longer term. They've been subtly moving toward water with the acquisition of Calder and remain well diversified across a range of sectors; gas, oil, nuclear, chemicals. I've been researching water related stocks for quite a while and nothing has excited me. ... I feel like this is a relatively unnoticed company. They're growth and performance over the past few years is impressive enough.
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 140,000 members already sharing their thoughts on thousands of stocks.
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