7 Great Stocks Some Wall Street Idiots Are Missing

As an editor and writer at The Motley Fool, I encounter a lot of brilliant investing ideas. Sometimes I notice them immediately and profit. Sometimes it takes me years of hindsight and regret to finally recognize them.

I tell you this because the brilliant ideas can hide, but the truly, magnificently stupid ideas can't. They announce themselves with an unironic roar.

I came across one especially stupid Wall Street investing idea recently that I want to tell you about. I don't want to ruin the surprise, but it smacks of shortsightedness and desperation. And because others' stupidity isn't truly useful unless we can profit from it, I'll also name seven stock ideas to take advantage of the less bright on Wall Street.

A bad idea in 140 characters or less
First, some background.

For those unfamiliar with Twitter, it's the social networking site that allows users to post their thoughts. The catch is that you have to do it in 140 characters or less. (For context, that last sentence was 62 characters long).

You can follow the half-baked thoughts of your favorite athlete, get real-time updates on your friend's latest caramel macchiato break, and read the latest Justin Bieber update.

All reasonable (and free) wastes of time. But now Wall Street has an idea of what to do with all the "data" that's floating around Twitter...

Wall Street's latest money-making scheme
Long story short, per a USA Today article, there's a study out there that "claims an 87% accuracy rate in using Twitter mood measurements to predict Dow stock prices three to four days later."

In other words, by parsing the millions of smiley faces, LOLs, and idle chatter posts on Twitter, computer programs can determine the mood of the market. And, more importantly, it can translate that into near-term stock predictions.

Supposedly, it's gained enough traction that "online surveillance of social-networking sites is emerging as a must-have tool for hedge funds, big banks, high-frequency traders and black-box investment firms that run money via computer programs."

Short-term trades with a purported 87% accuracy rate may sound tempting to you. But the past few years should be a stark reminder that not everything Wall Street does is smart (or money-making).

Why you need to run away ... fast
Let's set aside the taxes and commissions that kill the returns of short-term strategies. We can even set aside the fact that the study only covered nine months of data. Let's take a step back and look at the big picture.

Data is something we don't lack today. The mistake many investors make is thinking "one more data point can't hurt." Actually, it can. To make money in today's market, it's imperative to focus on the numbers that matter. Otherwise, we get lost in the minutiae.

Factoring in the emotions of a 13-year-old whose favorite American Idol contestant got booted off may be Wall Street's latest tool, but I'll stick with the truly meaningful data points. The ones that help us determine the price we're paying now and the profitable growth we can expect in the future. You know, quaint metrics like a company's sales, margins, growth rates, and price multiples.

7 stocks some idiots on Wall Street are missing
Focusing on finding companies that can win in the long term (years and decades), and buying them at good prices beats the heck out of jumping on the latest Wall Street investing fad. The former is how the great investors of the past have succeeded. And it's how the investing legends of tomorrow are doing it today.

If you're looking for stock ideas built for the long term, I've put together a list of seven companies that (1) have the potential to be great companies (if they aren't already) and (2) are small enough to grow.  

I've listed their market caps as well as a Twitter-friendly blurb next to each one. Check out the table and then I'll tell you how to use it.

Company

Current Market Cap

Long-term Story in 140 Characters or Less

Chipotle (NYSE: CMG  )

$8.7 billion

I can't name another restaurant concept in Chipotle's space that engenders such broad-reaching fandom.

Tempur-Pedic (NYSE: TPX  )

$4.4 billion

An innovative, high-end bedding company whose 50% gross margins make "putting your money under a mattress" a tempting option.

Morningstar (Nasdaq: MORN  )

$3.0 billion

This article is about the proliferation of useless financial data. Morningstar provides the opposite.

Buffalo Wild Wings (Nasdaq: BWLD  )

$1.1 billion

A debt-free restaurant concept that has achieved 23% sales growth and 32% EPS growth over the last five years.

Whole Foods (Nasdaq: WFM  )

$10.7 billion

Supermarket chain that's riding the organic food trend with a focus on "conscious capitalism."

Rosetta Stone (NYSE: RST  )

$0.3 billion

As we get more global, Rosetta Stone's learning software seeks to bridge the language barriers.

Intuitive Surgical (Nasdaq: ISRG  )

$13.7 billion

As health care strives to get both cheaper and better while our population ages, robotic surgery has a tantalizing opportunity.

Sources: Yahoo! Finance and Capital IQ, a division of Standard & Poor's.

These companies rank among my favorite growth stories in the market. But I haven't bought shares in all of them yet. Here's why. Unlike those mining Twitter for investing ideas, I believe the big money is made by buying great companies at cheap prices and then holding for the long term. Or until some Twitter algorithm or future fad causes the market to overvalue the company.

So ignore the short-term noise, focus on finding great companies, and prey on some Wall Street idiots. And if you've got the appetite for one more stock idea, click here for our free report: "The Only Energy Stock You'll Ever Need." Hint: It's less than a tenth of the size of ExxonMobil.

Anand Chokkavelu owns shares of Tempur-Pedic, Whole Foods, Rosetta Stone, Intuitive Surgical, and ExxonMobil. Yes, you can follow him on Twitter. No. Irony!

The Motley Fool owns shares of Chipotle Mexican Grill, Rosetta Stone, Morningstar, and Whole Foods Market. Motley Fool newsletter services have recommended Intuitive Surgical, Morningstar, Buffalo Wild Wings, Rosetta Stone, Whole Foods Market, and Chipotle Mexican Grill. 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.


Read/Post Comments (21) | Recommend This Article (78)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2011, at 6:23 PM, gotham83 wrote:

    Here's one I really like - both shrt-term and longer-term: SPPI

  • Report this Comment On May 20, 2011, at 7:39 PM, wjcost wrote:

    Whole Foods has very serious competion, including Wegman's, Harris Teeter, and even Giant and Safeway, and Trader Joes for specialty items.

    If you want a real sleeper try NVZMY.PK. Google POET. Penny stock it is NOT.

  • Report this Comment On May 20, 2011, at 9:40 PM, JohnConners wrote:

    Here are some important facts about Rosetta Stone.

    The company copied a system already in use, but not

    at that time in CD-ROM format. The linguistic sequencing of the materials was done by a man whose area of study was economics. For this reason the system leads to poor learning of

    a foreign language. All of the many Rosetta Stone languages were translations from English and therefore grammar and vocabulary

    presentation is chaotic and difficult to learn. No study

    has ever been conducted to warrant Rosetta's use of the term: proven system. Although the CEO quotes an 80 billion dollar industry, that includes all classes in schools and colleges around the world. There are specialized schools, especially in Asia and Europe that use materials far better than the few lessons presented by Rosetta Stone with activities that have been shown to work. These are the speakers you see and hear on television from countries as poor as Iraq and around the world. Rosetta Stone will never capture this classroom market because their material covers only about 1% of what is needed to learn a foreign language. Their Totale system cannot work because students are not prepared for conversation and because conversation that is used in real situations or in classrooms involves the visual aspect of the speaker who points, gestures, displays objects, walks, runs etc that are part of every conversation. Totale is like learning conversation on the telephone without the worldly

    cues. Now here is the hot spot for Rosetta Stone.

    More than 40% of the stock is owned by the insiders, venture companies, who want to get their cash to enable them to make investments in other companies. But if they sell now with the stock value about 4 points below its IPO it will signal

    that they have no confidence in the company.

    So they will try to beef up sales by manipulating

    pricing structures, advertising heavily, and making

    false claims like: Used by the US Army, when in fact it is made available to army personnel, but the Army School at the Defense Language Institute uses their own crafted system. Most recently the

    Army dropped the Rosetta Stone contract, as of July of this year, 2011. With all of this the Fools continue to make positive statements. They did the same thing for Tivo and KrispyKreme. I would be very cautious with the Fools recommendations.

    They ignore the fact that about 4 million of the Rosetta Stone shares have been sold short.

    All of this adds up to a very poor investment and a terrible set of uninformed advisers who are displaying an array of poorly chosen Motley Colors.

  • Report this Comment On May 21, 2011, at 1:14 AM, davidkarro wrote:

    John Connors' Rosetta Stone critiques reinforces some suspicions I have. But I wish he would provide some basis for his claims. is his background, and why is he in position to evaluate the pedagogical value of the program?

  • Report this Comment On May 21, 2011, at 1:19 AM, techlvr11 wrote:

    I strongly disagree with views regarding Twitter.

    The power of twitter is in realizing what is capturing people's imagination. This in turn bubbles up latent desires and needs of public at large, drives awareness, powers adoption and results in real dollars. I know because within 5 days after launch, twitter feed from my product reached over 2 million people and that in turn gave us more traffic than we could handle.

    I know LinkedIn is getting lot of flak too but if you are active LinkedIn user, you'd know the power of their networking. Over last 3 years, my best jobs have come through twitter contacts. Constant updates, ability to connect with more people has given me opportunity to forge new, mutually beneficial relationship and strengthen old ones. Once again, this has resulted in real dollars as business deals formed helped gather useful data and postion products and services that otherwise would have been hard to expensive to do.

  • Report this Comment On May 21, 2011, at 8:45 AM, soothesmysoul wrote:

    this fool knows that bershire hathaway is the best if them all with 20 plus compounded return for last 30 years

  • Report this Comment On May 21, 2011, at 12:53 PM, Howard1ii wrote:

    techiver11, Comparing Twitter to Linkedin is like comparing apples to Oranges. Capturing the imagination of a pimply faced 14 year old, and her latest thoughts about Justin Bieber, cannnot be compared to some of the value that can be derived from Linkedin info if you take the time to leverage it.

  • Report this Comment On May 21, 2011, at 2:14 PM, TMFBomb wrote:

    @techlvr11,

    A few friendly potshots at Twitter aside, I was mostly writing about (and criticizing) the practice of using Twitter data to help the investing process.

    I wasn't commenting on Twitter's business applications or the valuation of private Twitter shares.

    -Anand

  • Report this Comment On May 21, 2011, at 11:03 PM, Darnedifino wrote:

    I'm curious what JohnConners has to say about these testimonials at http://usarmy.rosettastone.com/testimonials.htm

    "I have been studying Arabic off and on for the last year but it has been very difficult to make much progress with no teacher and no real guidance. This program has provided me with both."

    - PFC J.T, Machine Gunner Airborne Unit,

    Ft Richardson AK

    “I would suggest anyone who has the time to take a Rosetta Stone course to take it, it is simple to understand and laid out in a fashion so that if you don't understand it you can easily go back and learn it. To sum it up, in one block of instruction from this course I was able to get a child safely home."

    - SPC H, A Btry. 2-142nd F.A.

    “I have been using Rosetta's Pashto product (online army version) here in Afghanistan … your product has helped me immensely with everyday law and order operations as well as crowd control, not to mention public relations. Thank you for such a wonderful product…”

    - SGT M., 272nd Military Police,

    Kandahar, Afghanistan

    “I am currently studying Arabic with the Rosetta Stone program. I must say that I was very leery about even being able to learn the language at all, much less on-line.

    I have been through several classes where they try to teach you the "basics" that we will need here, and none of it sticks. I thought maybe I was the problem. But, curiosity and boredom came together here in Iraq and I gave the Rosetta Stone Program a shot

    ... Just after the first lesson, I felt much more comfortable with the language... I really never expected to be able to recognize the words (it all looks like a bunch of squiggles). [After using RS] I could identify certain words and phrases very quickly... I have noticed that [now] I can pick out certain words and phrases when at the local national market.”

    - 1LT Z, B Co. XO

    FOB Warhorse, Baqubah, Iraq

    “Rosetta Stone is an amazing learning tool which has improved my understanding of the German, Italian, and Russian languages.”

    - SSG G, 4-31st IN

  • Report this Comment On May 22, 2011, at 6:18 PM, drgreenwald wrote:

    I don't know the business plan and data for Intuitive Surgical but have seen this company touted as a good investment by The Fool. As a surgeon who reads and understands the medical literature, there are no level I (highest quality) reports that support robotic surgery at least in orthopedics as having improved outcomes. In fact there are ample reports that prove outcomes are not better. The driving force in medicine these days thanks to government and commercial cuts is ratcheting down of reimbursement to hospitals and physicians. Bundled payments to hospitals for surgical care will mean that doctors will compete with the hospital laundry and cafeteria for set dollars. Only proven technologies with documented better outcomes will survive. My rural hospital will never afford a robot let alone other expensive computer navigation systems. It remains to be seen whether flashy marketing will promote the growth of an unproven technology that future reimbursements will short change.

  • Report this Comment On May 22, 2011, at 8:34 PM, azmfool wrote:

    You know, I'm more likely to read a post that summarizes and cites references. So-o-o...

    I believe the takeaway from this should have been Twitter feed is probably being used to provide live "technical" data. That is anathema to the Fool. I'm not a fan either, hence the quotes. No support levels, Bollinger bands, or barbershop opinions for me.

  • Report this Comment On May 23, 2011, at 10:12 AM, bretco wrote:

    John Conners is right-on with his critique of

    (F)fools @ Fools. As a victim of the Fool's cheerleading of KrispyKreme and several others I have had the unfortunate and unlucky experience of selectively chosing the "Dogs of the Garners"

    and will not be retiring for an extra decade or so.

  • Report this Comment On May 23, 2011, at 10:59 AM, noryakerson wrote:

    This article could have easily passed as one of Motley Fool's April Fools’ Day pieces. Everything about twitter is confounding to me. Much about Wall Street's actions and motives I also find perplexing. Couple the two and introduce the fact that “serious” money managers are actually mining the "brain farts" twitter calls substance to determine financial trends enters the territory of full blown lunacy.

  • Report this Comment On May 23, 2011, at 4:14 PM, TMFCrocoStimpy wrote:

    If anyone is interested in the paper which did the Twitter analysis it can be found at

    http://arxiv.org/abs/1010.3003

    I have no problem with the general premis that they are trying to capture the emotional state of the populace, which should in turn reflect on the short term behaviour aspects of market movements. Not my preference for an investing strategy, but not an out to lunch hypothesis, either. However, I would guess that it will rapidly become a useless data stream if successful because it is easily polluted/manipulated through robo-tweets.

    Xander

  • Report this Comment On May 28, 2011, at 12:23 PM, BFil wrote:

    Rosetta Stone may be a recovery stock for some with insight about how the company will be turned around.

    This insight is however clearly not available to management, as the share price has not just spent two years declining but declining a lot.

    When a company can be convinced (against the odds) that their employees should be given a copy to get their learning started, then at least Rosetta Stone sells a copy. But the effort of learning is considerable, nether Rosetta or any other has a miracle system.

    Also the more it is out there the more people will come across others who have failed to make progress. This is a horrible market to base a whole company on and the share price concurs with this opinion.

  • Report this Comment On May 29, 2011, at 4:46 PM, ershler wrote:

    @drgreenwald,

    Robots will become more integrated into the medical sector and replace a lot of doctors just like they did welders and assembly line workers but not to the extent they did in the manufacturing sector. The only question is how fast it will happen.

  • Report this Comment On June 01, 2011, at 1:13 PM, mistercab1 wrote:

    I have used Rosetta Stone for years (in Farsi and Arabic), and the Totale is even better than the older, still-excellent programs. The user experiences early success, and it is actually fun to learn. However, the elephant in the closet is that there really aren't enough people in the world who want to learn one or more foreign languages to support Rosetta Stone and its future growth. It's a great program without enough of a market.

  • Report this Comment On June 02, 2011, at 6:21 PM, drgreenwald wrote:

    A study from the Norweigian joint replacement registry presented to the EFORT congress June 1 showed higher revision surgery results in only 2 years from computer navigated operations. Technology fads such as robotic surgery may blow themselves up in time

  • Report this Comment On June 04, 2011, at 5:38 PM, ikkyu2 wrote:

    Greenwald, the ISIS products aren't about quality; they're about volume. You can do a case in half the time if you really understand how to operate the robot, without a decrease in quality.

    I don't know how you manage your personal life, but I can tell you that a lot of folks, even at your tiny rural hospital, would like to magically reduce the amount of time you spend in the OR by 50%. The hospital has to employ your scrub nurse and circulators, tie up an anesthesia machine (and an anesthesiologist, though yours may be his own boss), and all sorts of other resources while you are poking around in there.

    Or maybe you're one of those surgeons whose hospital never brings up the availability of OR resources with him. If so, you're the only one I know!

  • Report this Comment On June 07, 2011, at 7:37 PM, midnightmoney wrote:

    Darnedefino,

    So what youre saying is these guys in the army took the time out from their busy days in a war to write to rosetta stone about how good their program is? Is that actually really what you're saying you really actually believe and that we should believe?

    RST will burn you.

  • Report this Comment On February 23, 2012, at 10:29 AM, bIlluminati wrote:

    Nine months later: Five of seven picks are profitable, one is near break-even, and the one that got criticized the most is RST (Rosetta Stone), down 40%. Overall, these picks are up 18.50% from the 5/20/2011 close to the 2/22/2012 close, vs. the SP-500 gain of 1.83% over the same period. I'd say that both Anand Chokkevalu and John Conners added value here.

    Disclosure: Short CMG at $383.00. It's up 37% while earnings are up only 20%. Target < $300.

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