Stocks of the Week

The idea of supplying customers with recommendations based on prior shopping habits isn't all that new. If you've signed on for service with Blockbuster or Netflix, you know about the movie recommendations they hook you up with (mine right now include Lethal Weapon and La Femme Nikita -- does that say something about me?). Shoppers on Amazon.com get a similar slew of suggestions based on their previous purchases.

Investing in stocks may not be comparable to renting a movie or buying a book on Amazon, but with thousands of stocks out there, finding new ideas can be overwhelming. To help grease the ol' mental machinery, The Motley Fool's CAPS service recently started providing players with daily stock recommendations.

It works like this: CAPS members create a portfolio by rating some of their favorite (and least favorite) stocks. The super-secret stock-of-the-day algorithm -- which I've heard uses pi to the 1,745th decimal in the calculations -- is then run. It then starts churning out highly rated stocks for each player, based largely on their prior selections and the current phase of the moon.

To give you a sample of ideas CAPS is doling out, here are the five recommendations the CAPS supercomputer spit out for me last week:

As smart as the CAPS Stock of the Day algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions. With that in mind, I thought I'd kick you off with some thoughts on Consumer Portfolio Services.

When investors get really bearish, they have a tendency to apply their bearishness very broadly and can end up punishing perfectly good companies as a result. This seems like the case for Consumer Portfolio Services.

When you crack open the company's 10-K filing, you don't have to read too far to get to the word "subprime." Currently, it really doesn't matter what "subprime" refers to -- just the mention of it as part of your business model is enough to make many investors think of Accredited Home Lenders (NASDAQ:LEND) and Bear Stearns (NYSE:BSC) and say, "Not for me!"

In fact, CPS is involved with subprime lending in the auto market -- not the housing market, where all the recent trouble has been. As Hidden Gems Pay Dirt advisor Jim Gilles pointed out when he recommended the company back in June, there are fundamental differences between subprime lending in housing versus auto markets. So for those willing to do some research, the rocky performance of CPS' stock and its low price-to-earnings (P/E) multiple may be a great opportunity.

CAPS player MJKscorecard recognized this opportunity recently and made an extensive bullish pitch on the stock in CAPS. He concluded that the company's "growth in revenue, originations, and managed portfolio," along with management ownership and "panicky blood in [the] streets," has created an opportunity that could lead to "a 50% return in 12 months and a 100% return in less than 3 years."

Now for the real question: Are you getting your own CAPS Stock of the Day selections yet? If not, what are you waiting for? CAPS is free, and getting your Stock of the Day picks is much more fun than having me get California's Governator to track you down and give you a wedgie. And don't think I won't do it ...

More CAPS Foolishness:

• 5 Dynamic Dividend Stocks
• 7 Surprising 1-Star Stocks
• 7 Top Stock Blogs