Wall Street Needs to Get Behind These Stocks

Wall Street can't generate enthusiasm for the companies listed below. So why do our Motley Fool CAPS members disagree? They've bestowed on these companies the highest four- and five-star ratings, signaling their faith that the associated businesses will outperform the market, while Wall Street offers lackluster support at best.

So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?

Stock

CAPS Rating (out of 5)

No. of Analysts

Wall Street Bullish Sentiment

CAPS Bullish Sentiment

Cemex (NYSE: CX  ) **** 15 67% 96%
Clorox (NYSE: CLX  ) **** 11 55% 95%

Source: Motley Fool CAPS.

Now as much as we love our CAPS community, don't buy these companies just because they've garnered top ratings. And don't sell 'em just because Wall Street says to, either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.

Swim with the fishes
As the largest producer of cement in Venezuela, Mexican cement maker Cemex became the target of the country's ruling strongman Hugo Chavez and saw its operations, along with those of Lafarge and Holcim, stolen from it during a wave of nationalization. The dictator manufactured a crisis and used it as justification for undoing the previous administration's privatization policies. A housing boom led to rising cement prices, but with Chavez imposing price controls, the equilibrium between supply and demand was thrown out of whack. He then rationalized the seizure by pointing to the balance being upset.

At least Chavez pays his victims for his theft, though he tends to lowball the price tag. ConocoPhillips (NYSE: COP  ) wanted $20 billion in compensation and ExxonMobil (NYSE: XOM  ) $12 billion when they saw their oil operations stolen; Chavez offered $1 billion. Exxon has since lowered its asking price to $7 billion. Lafarge ended up getting $250 million for its cement assets and Holcim got $650 million.

Cemex rejected an initial $650 million offer from Venezuela, saying its assets were worth $1.2 billion, but facing interest payments coming due on $15 billion worth of debt, the Mexican cement maker just agreed to accept $600 million. That debt is one reason why CAPS member siloguy1 thinks Cemex will have a problem beating the market indexes.

Too much debt. Bad short term in construction. Mexico may want to break Cemex up to avoid a "too big to fail" problem.

Add the cement producer to your watchlist, then head over to the Cemex CAPS page and tell us whether this stock is stuck with a pair of cement shoes.

Bleach blonde
Now Chavez is doing the same thing with consumer goods, slapping price controls on some 15,000 items and forcing Procter & Gamble (NYSE: PG  ) , Colgate-Palmolive (NYSE: CL  ) , and others to report their production costs to the government. The people see what's coming and are stocking up on essential goods, causing shortages. Get ready for the heavy hand of government to intrude again.

Yet rising raw materials costs have been the primary cause of rising prices. Clorox was able to offset some of its costs by increasing prices, but its operating profits still narrowed even as revenues rose. While Clorox does have a presence in Venezuela, the country only represents 2% of its annual revenues, and though the inflationary economy sapped $0.11 worth of earnings per share, the overall impact should be kept to a minimum should Chavez flex his dictatorial muscles once again.

Clorox was probably more concerned with Carl Icahn trying to take over the company this past September while encouraging Procter & Gamble and others to make a bid. Having successfully defended against the action -- Icahn's slowly exiting his position now -- Clorox can focus again on building sales for its potent portfolio of products: More than 80% of its products are No. 1 or No. 2 in market share.

CAPS member mrmcmath likes the solid lineup of goods and its dividend, which currently yields 3.7%. I do too, and marked the consumer-goods leader to outperform the market, but tell us on the Clorox CAPS page or in the comments section below whether you agree. Then follow its progress by adding it to your watchlist.

What's wrong with that?
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.

Sign up today for the completely free service, and tell us which side of the street will be the ultimate winner.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Clorox. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. 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 (1) | Recommend This Article (3)

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 December 14, 2011, at 2:51 PM, haagydog wrote:

    You're article left out the significant fact that the settlement also included the wiping out of 250 million of AP for Cemex, making the settlement closer to a 750 million dollar positive change to the balance sheet and a sweeter deal then the original offer of 650 million. Patience got Cemex an additional 100 million dollars.

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