Stock Madness 2006: Winning With Balance

The following article is part of The Motley Fool's "Stock Madness 2006," based loosely on the annual NCAA College Basketball Tournament, a.k.a. "March Madness." Throughout the competition, our writers and analysts will engage in head-to-head competition. You, dear readers, are the fans and referees - after you read these exciting duels, your votes will determine who moves on to the next round of play. The writer who survives the tournament will be our champion and most valuable "coach."

But, please, make no mistake -- "Stock Madness 2006" is a GAME!

What a comeback. After surviving an early onslaught of three-pointers from Sirius, my big men took control. A few long-range jumpers from shooting guard iRobot (Nasdaq: IRBT  ) iced the contest.

But now I've got Rex Moore and his very old-school offense. Surely he'll argue that his stalwarts outweigh my smaller guys. He's right. They're big, they're fat, and they lack the foot speed to get back on defense, which will allow me to bury his team in transition. Or, in investing terms: Only one of Rex's stocks is poised for the multibagger, and that's debt reclamation specialist Portfolio Recovery Associates (Nasdaq: PRAA  ) .

My team, on the other hand, contains several sharply undervalued stocks, three of which should at least double, in my opinion. First there's my shooting forward, Embraer (NYSE: ERJ  ) , which is worth at least $96 a share, by my estimation. Then there's Oracle (Nasdaq: ORCL  ) , my center. It's cheaply valued, loaded with catalysts, boasts committed management, and just reported another strong quarter. Finally, there's Rule Breaker iRobot, which features almost no competition in an industry that forecaster Paul Saffo identified as one of the most important of the decade ahead. That just screams multibagger.

The other two players on my roster provide the balance. At point is Chattem (Nasdaq: CHTT  ) , which, in a bit of irony, has more insider commitment than any of Rex's starting five, including Motley Fool Hidden Gems pick Portfolio Recovery. In fact, while executives at Portfolio Recovery have begun to cash in gains, Chattem's management has been piling up on its stock. I'd rather hand the ball to a committed gym rat than a player who's just happy to be riding the pine.

Finally, I've got Taiwan Semiconductor (NYSE: TSM  ) at power forward. Taiwan Semi is the world leader in semiconductor manufacturing, which means it makes chips others design. In fact, it does this so well that American chip makers such as LSI Logic (NYSE: LSI  ) have all but given up on production. And did I mention that Taiwan Semi pays a market-trouncing 3.4% dividend yield?

Rex's team is good, but I really do think that I've got more potential multibaggers and two very solid performers. We can post up, fast break, shoot the three, and dish for the easy score. That's about as good as it gets, and it should be enough to win this matchup.

Rex Moore's rebuttal
Jeremy Siegel has shown that reinvesting dividends in stable consumer goods companies like Procter & Gamble and Johnson & Johnson has produced the greatest returns among S&P 500 stocks over the last 50 years. To suggest there's nothing left in such stocks is either naive -- or outright obfuscation in order to win a contest. Things are not different this time around, and vacuum-cleaner robot companies with P/Es of 239 will not be the great stocks of the next 50 years.

I humbly suggest that you don't forget the lessons of the past decade, and instead vote for the companies we all know will be around for decades to come.

Check out Rex's team, thenvote for the winner!

iRobotis aMotley Fool Rule Breakersselection, helping the portfolio achieve a 31% average return against just 7% for the S&P 500. Find out which other stocks are leading the way by snagging anall-access passto the site. It's free for 30 days.

Fool contributorTim Beyersowns shares of Oracle. You can find out what else is in Tim's portfolio by checking hisFool profile. Rex Moore believes in his team so much that he owns shares in three of the members: Johnson & Johnson, Procter & Gamble, and Portfolio Recovery Associates. Embraer is aMotley Fool Stock Advisorpick.The Motley Fool has an ironcladdisclosure policy.

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