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, 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 companies 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, a return on equity above 12%, and a dividend. I've also included the ratings that 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.

Valspar
While some companies merely hint at the kind of performance they're shooting for, Valspar is very clear about its goals. On the front page of its investor relations page, the company declares that it's shooting for 12% sales growth, 15% earnings growth, and a pre-tax return on capital of 20%.

Not shabby at all if the coatings and paints company can deliver. As it stands, top-line growth hasn't topped 12% since 2001, and though earnings per share jumped 61% over the past 12 months, both 2007 and 2008 saw profit declines. Valspar has put up a 16.6% pre-tax return on capital over the past year, so there's still a gap to fill there, too.

But, hey, if you're not going to aim high, why aim at all?

While consumers may know the name Valspar primarily through the company's relationship with Lowe's -- which is a 10%-plus customer -- the company is fairly diversified with roughly $1.1 billion in sales coming from professional and do-it-yourself painters, $1.6 billion coming from the industrial market, and another $200 million coming from specialty coatings.

Though the lion's share of Valspar's revenue comes from the U.S., the company is also positioning itself for growth overseas. More than 35% of its sales are from outside the U.S., including a strong and growing presence in China.

The company has consistently produced strong cash flows well above its net income and spends little on capital equipment. Add to that a dependable, growing dividend and a reasonable valuation, and this stock starts to look like it makes a whole lot of sense.

Walgreen
A lot of investor brain cells have likely been fried trying to figure out whether to go with Walgreen or archrival CVS Caremark (NYSE: CVS). I say, why choose?

It's not like this is choosing a New York baseball team, where the Yankees are clearly great while the Mets are terrible (just kidding, Mets fans!). The fact is that the two companies produce pretty similar margins, are estimated to grow at similar rates in the years ahead, and even have eerily similar stock prices. I don't think it's a stretch to say that there's room for both of these companies to do well. I would, however, leave also-ran Rite Aid (NYSE: RAD) out of the picture.

If pushed to pick between the two, I'd give the nod to Walgreen. The company earns more on its equity, pays a better dividend, and carries less debt. And on an anecdotal level, I've always preferred Walgreen stores.

Noble
The Gulf of Mexico disaster may have turned some investors sour on oil drillers, but the world still has an insatiable thirst for oil and much of the easy-to-get-to stuff has been gotten.

In a lot of ways -- if not most ways -- drilling is basically a commodity business, but that doesn't mean Noble can't find ways to differentiate itself. For one, the company doesn't have overwhelming exposure in the Gulf of Mexico. In fact, Noble has a presence all over the world, from Brazil to the U.K. and Qatar, serving major customers like Petrobras (NYSE: PBR), ExxonMobil, and Mexico's Pemex. And, as my fellow Fool David Williamson recently highlighted when choosing Noble as an "11 O'Clock Stock," Noble has simply performed better than peers like Transocean (NYSE: RIG) and Diamond Offshore.

It's not hard to find Noble fans in CAPS either; the stock has 2,327 outperform ratings against just 28 underperforms. Bullish CAPS members think that the mess in the Gulf has led investors to let Noble's stock fall much too far, leaving it in serious value territory.

Getting down to business
Now the CAPS community wants you. 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.

I wouldn't recommend shorting any of these stocks, but that doesn't mean short-selling shouldn't be in your investing toolbox.