Drink In These 5 Top Stocks

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 140,000-strong CAPS community -- where members give the thumbs-up or thumbs-down to some 5,300 stocks -- seeks businesses it thinks will outperform the market. Below, we'll take a look at some of the most popular and talked-about stocks in the CAPS universe, and examine whether you think they'll continue their winning ways.

A tall drink of water
Going short on a stock is always a risky gambit that should not be undertaken lightly. You need the right fundamentals in place to pick a stock to bet against -- because, as noted economist John Maynard Keynes once said, the markets can remain irrational longer than you can remain solvent. Exuberance can push stocks to dizzying heights long after the investment bubble should have burst.

Last week, we discussed the dangers surrounding the UltraShort S&P500 ProShares ETF, and this week its real-estate cousin has appeared on our radar. The risks involved in using these leveraged ETFs are more manifest in the UltraShort Real Estate ProShares fund, as the class-action lawsuit against it highlights. The plaintiffs make the case that the degree of risk it poses was never properly identified, since the Dow Jones U.S. Real Estate Index (which the ETF is based on) fell more than 39% in 2008, but the leveraged ETF -- which should theoretically have returned somewhere north of 78% -- actually lost more than 48% during the period.

As we noted last week, these ETFs don't bet on the underlying stocks; they're not holding Annaly Capital or Simon Property Group (NYSE:SPG) as the index does. Instead, a fund like this uses a complex system of financial instruments such as swaps and futures to achieve the negative return. Perhaps that is what caused top-rated CAPS member mattdaddy21 to call for the ETF to outperform the market as he substituted bearish sentiment on real estate generally with the workings of this fund specifically:

When the first time home buyer credit expires, the real estate market will tumble quickly again. This will help push us along into our second dip of recession. The buyers will dry up. Why? What about great deals on foreclosures? Sure, existing home owners could put in offers on a foreclosure, but they can not have a sale of home contingency. So who is going to buy their current home??

Yet as the ProShares fund itself says, because it's looking to double the inverse of the index's return for a single day, investors may need to monitor their holdings on a daily basis as well. That's just too frenetic for Foolish investing, and it's why I wouldn't recommend using a leveraged ETF to play a bearish position.

What's in your wallet?
It's easy to hate your credit card issuer. After all, while it might have provided you access to easy credit to finance your lifestyle, it clamped down on your extravagances at the worst possible time. Credit card companies raised rates and boosted minimum monthly payments just when you needed the extra cash in your pocket. But should we really be mad at Capital One Financial or American Express (NYSE:AXP) for getting religion on prudence? We should expect -- if not demand – that a business tighten the reins when conditions warrant, and it's hard to argue that conditions haven't been ripe for a return to rational lending standards.

Capital One turned its first profit in a year because it took those necessary steps, including a "repricing" of its cardholders. Yet the situation remains fluid because delinquencies and charge-offs continue to rise, and with half its business in credit cards, the pending Credit CARD Act in Congress could bite this credit card issuer hard. That helps explain why CAPS member jed71 thinks Capital One is over its limit:

CC defaults still continue to rise, reserves will have to increase substantially given foreclosures / bankruptcies have not yet reached their peak. Don't expect anymore positive surprises in the coming few quarters. This one has a big leg down coming very soon.

We might enjoy a bit of schadenfreude at Capital One's expense, but what do you think about it as an investment? Let us know in the comments section below whether this credit issuer is in your wallet, then head over to Capital One's CAPS page and rate its ability to outperform the market.

Gather 'round
With so many good opinions about today's top companies, why not grab a pointy paper cup from the dispenser and join us at the Motley Fool CAPS water cooler? Your input can help guide other investors to stocks with bright prospects for growth. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.

Sign up today for the completely free service, and let us hear what you have to say about the great -- and almost-great -- companies that interest you.