Is This Stock a Buy?

Wall Street's analysts don't have a good track record. They're often short-sighted and overly optimistic. Savvy investors read their research, but ignore their buy and sell ratings. But if you can't trust the analysts, whom can you trust?

At Motley Fool CAPS, we use the collective opinion of 165,000 investors to inform our stock ratings. Members are scored on their accuracy and overall performance compared with the S&P 500. We then aggregate all the ratings, giving members with higher scores more influence on a stock's CAPS rating. This gives CAPS some of the best ratings around.

Let's look at a couple of stocks with extremely high ratings:

Stock

Analysts Buy Rating (out of 5)

CAPS Rating (out of 5)

P/E

P/B

PEG

U.S. Steel (NYSE: X  )

4.2

*****

N/A

1.35

0.63

Corning (NYSE: GLW  )

3.8

*****

9.5

1.7

0.74

Source: Yahoo! Finance. P/B equals price to book; PEG equals price to earnings to growth.

U.S. Steel

Expect United States Steel to look even more attractive if Australia's plan to tax its domestic mining companies goes through. The government wants to slap a tax as high as 30% on so-called "super" profits that exceed the country's long-term bond rate, currently around 6%. Both BHP Billiton (NYSE: BHP  ) and Rio Tinto (NYSE: RTP  ) , who were originally outraged by the tax, have been heavily involved with the new restructuring. The resources sector has driven Australia's economic growth for years, and the government's plan to give away the proceeds to fund retirement programs during an election year there could significantly harm the industry.

While that means you might want to hold off investing in BHP Billiton or Rio Tinto until things settle down, U.S. Steel would benefit if Australia's plan becomes law. Iron ore prices are already rising because of demand from China. If Australia shuts down its mining sector, global supplies of iron ore would tighten further. With about 70% of steelmaking costs tied to raw materials and energy, U.S. Steel's vertical integration and ownership of a significant portion of its own iron ore supply gives it a large competitive advantage over smaller players like AK Steel (NYSE: AKS  ) . Still, only time will tell whether the Australian mining tax goes through.

Corning

Corning's shares have fallen over the past few months. But when you consider that demand for LCD glass is expected to remain strong in 2010, the stock's paltry price-to-earnings ratio of around 10 indicates that it's not too late to get in on the cheap.

Wall Street has been bullish on the stock. Analysts have noted Corning's flexibility, which is "helping it maintain share in this constantly changing environment" and the fact that "demand for LCD panels continues to be strong, [and] the supply/demand dynamics have helped keep pricing stable, supporting Corning's margins."

Corning also recently came out with Gorilla Glass, a tough, scratch-resistant glass for touchscreens, which could open up whole new markets in mobile devices for the company. In short, Corning has lots going for it, and at 10 times earnings, you aren't paying much for those opportunities.

Given Wall Street's perpetual bullishness on virtually every stock, you should kickstart your own research with a slightly more evenhanded set of opinions. Turn to the completely free CAPS community, and harness the wisdom of the crowd.

Dan Dzombak does not have a position in any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.


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