High Expectations, Even Higher Returns

No one has perfect foresight, but let's be honest: The market is full of people who, as Oscar Wilde would say, know "the price of everything and the value of nothing." Far too often -- over the past year especially -- investors have been pitched sensational stock recommendations only to be left high and dry as shares crumble.  

To hunt down top-recommended stocks that have been rewarding investors accordingly, I summoned our Motley Fool CAPS community to point out a few four- or five-star stocks that have gone gangbusters in recent weeks. Data we've compiled shows that CAPS' top-rated stocks easily outperform the market.

While not formal buy recommendations, these four-week bloomers caught my attention:

Company

4-Week Price Change

Recent Share Price

2009 EPS Estimates

CAPS Rating  
(5 max)

Biovail (NYSE: BVF  )

29%

$10.76

$1.14

****

Petrohawk Energy (NYSE: HK  )

27%

$18.23

$0.40

****

Synaptics (Nasdaq: SYNA  )

45%

$21.58

$1.71

****

The9 (Nasdaq: NCTY  )

23%

$15.78

$1.94

*****

Valero Energy (NYSE: VLO  )

21%

$23.30

$3.36

*****

Data from Motley Fool CAPS and Yahoo! Finance, as of Jan. 22. Four-week price change from Dec. 27 to Jan. 21.

You can rerun the CAPS screen I used by clicking here. Note, though, that you'll probably get different results as the CAPS database updates.

Um, oil, are you ready to get back to business?
I've been spouting off for some time that the biggest bargains in today's market will likely be found in the energy sector. Why? Because it's been battered, bashed, de-bubblized, and left for dead. The more blood in the streets the better, right?

One hammered energy stock starting to perk up a little bit is refiner Valero Energy. Shares were creamed in 2008 after the snafu from Hurricanes Ike and Gustav prompted a closure of four refineries. Major damage was largely avoided, but the passing of the hurricane season was greeted almost seamlessly with the mother of all economic hurricanes late last year. Hey, when it rains, it pours.

It's been a daunting few months for these stocks, but at some point the carnage plaguing the energy sector will surrender to the reality that companies such as Valero are well run, about as vital to the economy as it comes, and, best of all, cheap! CAPS member rlloydevans laid out a nice synopsis on Valero in November, writing:

[Valero] is down because of the global recession and the collapse of oil ... This is the opposite situation from early 2008 when oil prices were over blown to an astonishingly (and unsupportable) $147/BBL - the recent colpase to $45-$55 is equally unsupportable. A global recession is a fantastic time to accumulaqte some beaten down oil stocks. Price plunges have halted programs to cut back on oil dependence (hybrid cars, etc). Now, companies like [ExxonMobil (NYSE: XOM  ) ] [ConocoPhillips (NYSE: COP  ) ] and Valero ... have great balance sheets to ride out the storms and pick up some new assets on the cheap from weaker competitiors.

CAPS All-star BSHumphreyII took a stab at valuation and pointed out the sustainability of refiners' earnings, noting:

At 4 times earnings, Valero is priced like everyone in the world is going to be plugging in a Chevy Volt next month. Barring that unlikely occurrence, I think it's a safe bet that gasoline prices have bottomed, and so has this stock.

A key reason that Valero and other refiners have done well in the past month is thanks to an increase in the crack spread -- the difference between the price of crude and the price of products made from it. Hat tip to CAPS player Tutom for recently pointing out, "Crack spreads looking better and will probably improve." This spread has been a boon to refiners like Valero, as shown by its recent upswing as integrated oil companies continue to wallow.

I side with the majority of the Foolish community: At under seven times forward earnings, Valero's priced as if gasoline is a passing fad. Yes, the stock's surge over the past few weeks has been hefty, but there's still likely some value to be had here. At last, one bright spot in an otherwise distraught industry.

Plenty more where that came from
Over at Motley Fool CAPS, these and legions of other top-rated stocks are being picked apart by more than 125,000 investors digging through today's carnage. Care to share your thoughts as well? I thought so. Click here to give it a try. It's 100% free, it's a lot of fun, and it can make you some money.

For further Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Motley Fool is investors writing for investors.


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