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 recent 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 companies that may fall into that "fish in a barrel" category, I looked for businesses that have shown signs of brilliance. Specifically, I focused on companies with a conservative balance sheet, annualized operating profit growth of 5% or better over the past five years, and a return on equity above 12%. I've also included the ratings the Motley Fool CAPS community has given each of these stocks.

Source: CAPS and Capital IQ, a Standard & Poor's company.

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 why these potential investments might make a whole lot of sense.

Seagate Technology
Quick, Economics 101: When supply increases and demand fails to keep pace, what happens? If you said "lower prices," give yourself a gold star.

This is exactly the situation facing Seagate as it heads into the final month of the third quarter. Seagate's CFO said just yesterday that drive production has been too high; Seagate could have to cut prices as it squabbles with competitors like Western Digital (NYSE: WDC) and Hitachi. But that's expected to be short-term, and it's very likely small beans in Seagate's big picture.

The big problem is the future of the disk drive industry. That's why CAPS members have given Seagate a middling three stars, and investors have allowed its stock to trade to a forward price-to-earnings ratio of just 4.8. On the horizon, companies like SanDisk (Nasdaq: SNDK) and STEC (Nasdaq: STEC) are storming the storage industry with their solid-state drives (SSDs), threatening to eventually send disk drives into retirement with relics like VHS tapes and vinyl records.

Investors must now figure out whether the threat from SSDs is really life-threatening for disk drive manufacturers, and if so, just how quickly the SSD invaders will be winding up for the death blow.

If you ask me, I think annihilating their more mature competition is the endgame for SSDs. However, I also think that investors have overreacted to just how quickly that's going to happen, and the low valuations in the sector are creating opportunities in Seagate and some of its competitors.

Suburban Propane Partners
The propane and fuel oil businesses that Suburban Propane Partners focuses on aren't facing quite the same threat of destruction that the disk-drive industry is. But that's not to say that it's an exciting, growing, or even particularly interesting industry.

So why have CAPS members given the stock a perfect five-star rating? Despite its industry, Suburban Propane's results have been anything but dull. While the recession has been rough on the company, its revenue and profit have both expanded significantly over the past decade, as the company has extended its reach and sought to become more efficient and profitable.

Since natural gas trumps propane for most U.S. households, it's highly unlikely that Suburban Propane will be a world-beater stock. But with a reasonably captive customer base and a current dividend yield of 7%, investors don't need to look too hard to find reasons to like this stock.

Emerson Electric
From an industry perspective, Emerson Electric has a clear leg up on the other two companies in the table above. Like other global industrial giants such as GE (NYSE: GE) and Eaton, Emerson Electric has the opportunity to grow right along with the global economy.

That hasn't meant a whole heck of a lot over the past couple of years, with the global economy looking an awful lot like a befuddled klutz, helplessly tripping over itself. But that may be steadily changing. Earlier this month, Emerson's fiscal-third-quarter results blew last year's out of the water, topping Wall Street's estimates on both the top and bottom lines.

The company's results were bolstered by the acquisition of Avocent -- an IT company it purchased for just more than $1 billion late last year -- but management also highlighted continued improvements in the markets it serves. Chairman and CEO David Farr said, "We expect this slow, but steady, recovery to continue for the next several years. We do not expect a double-dip recession in our end markets."

If that doesn't sound particularly positive to you, stack it next to some of the doomsday scenarios being bandied about, and it sure seems like a breath of fresh air.

Emerson has a long history of success, having raised its dividend every year for more than 53 years. The stock's current 2.8% dividend may not get some yield chasers excited, but with a solid business and a dividend growth record like that, investors would do well to at least have Emerson on their radar.

Getting down to business
Now the CAPS community wants you. That's right, do you think these stocks make sense? Or will they disappoint investors? Head over to CAPS and join the 165,000-plus members already sharing their thoughts on thousands of stocks.

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