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 Long Term Capital Management and many other examples -- too much complexity can often end in calamity.

In an effort to track down some of the 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 the Motley Fool CAPS community gives 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 good stocks for further research. And on that note, let's take a closer look at why these potential investments might make a whole lot of sense.

Corning
Corning knows glass. Of course, when I put it like that, it doesn't make the business sound nearly as compelling as it is. So to be more specific, Corning knows specialty glass used in mainstream applications like LCD TVs, fiber optic cables, scratch-proof handheld screens, and solar modules. Sound a bit more interesting now?

The company actually had a very rough go of it following the dot-com bubble, when people began realizing we weren't going to run fiber optics to Mars and back. But Corning has shown its resilience by not only bouncing back from that, but also by keeping its head well above water during the most recent recession. At this point the company has a pretty solid foundation -- it spits out consistent cash flow and has a net cash position on its balance sheet.

Better still, Corning shares look attractively valued right now. After making a big postrecession bounce, the market seems skeptical that Corning's earnings are going to do much of anything in the foreseeable future. But that is just fine. Even if the company's bottom line doesn't go anywhere, the current 2010 price-to-earnings ratio of less than nine would still likely be a pretty sweet bargain.

Teva Pharmaceutical
There's a heck of a lot about generic-drug maker Teva that makes sense, and it all starts with its business. Increased use of generic drugs is one way to help slow spiraling health-care costs. And there will be plenty of generics hitting the market as pharma giants Merck (NYSE: MRK), Pfizer (NYSE: PFE), and Eli Lilly (NYSE: LLY) all watch major revenue generators lose patent protection in the next few years.

Teva's stellar business has also led to enviable financial performance. In addition to numbers noted above, we could get excited about other measures such as Teva's hefty cash flow or steadily growing margins.

If there's any problem with Teva it's that its stock has tended to carry a pretty rich valuation. Until now, that is. General market concerns along with hand-wringing over competition from the likes of Novartis for Teva's own branded drug, Copaxone, have left Teva's stock at a markedly lower valuation. Based on expected year-end earnings, the stock currently trades at a price-to-earnings ratio of slightly less than 12.

Teva's stock makes enough sense that last month my fellow Fool Jim Mueller made it his pick for the Fool's 11 O'Clock Stock series -- which means The Motley Fool is a proud owner of Teva shares.

Intel
In his review of Intel's recent quarterly earnings release, my fellow Fool Anders Bylund concluded that "The chip giant is in good shape and possibly undervalued, but not exciting enough to make me start a real-money position for myself." I definitely agree with the part about Intel being in good shape.

As for the rest of it, I'm a bit more bullish than Anders. I see Intel's stock as a bargain right now and own a chunk of Intel. Why? Because even though not everything Intel touches turns to gold, the company is a leader in an industry that is proven and mature, yet still has growth opportunities.

Sure, AMD (NYSE: AMD) is hungry to take a bigger piece of the pie and its recent performance is making it look like a more viable competitor, but it still has a long way to go before Intel investors would start tossing and turning at night.

We also don't want to forget that Intel is among the group of high-quality, blue-chip stocks that have dividend yields comfortably above those of 10-year U.S. Treasury bonds. That's a fact that nicely complements the stock's 2010 P/E of 9.7.

Put it together and what have you got? Bibbidi-Bobbidi-Boo! Wait, no, that's not right. Oh yeah, you've got a very buyable stock.

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 170,000-plus members already sharing their thoughts on thousands of stocks.

I think these stocks make sense, but I'm not so sure about taxes. And neither is Warren Buffett.