This Week's Rising Star Recommendations

While one of our Fool writers was warning of irrational exuberance in the current market environment, our undaunted Rising Star analysts stormed ahead this week by buying seven stocks for their portfolios. Below, I've briefly summarized four of those recommendations and provided links to the three others.

Rising Star Buy: Coca-Cola
Rising Star analyst Rex Moore wanted to start his portfolio with one anchor stock that will "contribute steady returns for years to come." He describes anchor stocks as "dividend-paying, financially sound, strong consumer brands that act as bear-market protectors and return accelerators." After a screening process that generated a shortlist including Procter & Gamble (NYSE: PG  ) and McDonald's (NYSE: MCD  ) , Rex ultimately had to choose between Microsoft (Nasdaq: MSFT  ) and Coca-Cola (NYSE: KO  ) . In the end, he decided that Coke would be it!

It was a tough call. Microsoft had "the best margins and returns on investment" and also "carried the best valuation." But after considerable soul-searching, Rex decided that Microsoft wasn't quite at the "set and forget" stage, and carried a bit more risk than he'd like in an anchor stock. I must confess that it's hard to argue with Rex's choice of Coke. It has a "sustainably great business model" and has delivered $7 billion in free cash flow over the past 12 months. Read Rex's article to learn more about his thinking on Coke.

Rising Star Buy: GameStop
Jim Mueller felt that the market was undervaluing GameStop (NYSE: GME  ) , so he went ahead and purchased shares of it for his Messed-Up Expectations Portfolio. While the company's performance has been far from perfect lately, Jim believes that the seller of new and used video games (and the units to play them on) will do better than analysts are expecting.

He does concede that the company has a bad reputation on Wall Street, which thinks that "it will suffer from poor same-store sales, competitors, and growth in digital game downloads direct from publishers." But he also believes that the market is being stingy by "expecting just 1.1% annual growth for only five years before grinding to a complete halt in growth." Read Jim's article for more on his contrarian take.

Rising Star Buys: Limited Brands and Wet Seal
Sean Sun feels strongly that the "retail sector is poised to come back big in the next year or two," so he added both Limited Brands (NYSE: LTD  ) and Wet Seal (Nasdaq: WTSLA  ) to the Dada Portfolio he co-manages with Ilan Moscovitz. Sean was looking for strong brands with pricing power, and he feels that these two companies fit the bill.

In Limited Brands, the parent company of Victoria's Secret, Sean sees a company with enormous potential that is only just now expanding internationally. As for Wet Seal, a specialty retailer based in California, Sean thinks he's found a company that "swims under most radars." The company, however, "hasn't escaped the notice of some elite small-cap, value guys like Royce and Columbia Wanger." Sometimes, it makes sense to see what the smart guys are doing. (That was my strategy in chem lab back in high school!)

To learn more about Sean's thinking on these two retailers, read his article.

Whither the US economy?
Does the current market environment require a "highly defensive stance right now" when it comes to buying stocks? Or should we heed Sean Sun's more upbeat advice that this is the "perfect time to make some contrarian picks?"

One way or another, our Rising Stars have offered several attractive stock ideas this week. Be sure to read all of the articles and let us know what you think on our discussion boards.

Below are three additional Rising Star buys from this week:

John Reeves owns shares of Procter & Gamble. And despite actually enjoying chemistry, he was never any good at chemistry lab. Coca-Cola and Microsoft are Motley Fool Inside Value recommendations. Coca-Cola and Procter & Gamble are Motley Fool Income Investor picks. The Fool owns shares of and has written covered calls on Procter & Gamble. Motley Fool Options has recommended writing covered calls on GameStop and a diagonal call position on Microsoft. The Fool owns shares of Coca-Cola and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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