5 Stocks You're Gonna Want to Own

The souring economy ought to have shares of aesthetic-surgery companies lagging. With less discretionary money available, the theory goes, elective procedures will be put on hold. Certainly, aesthetic-laser companies like Cutera (Nasdaq: CUTR  ) and Palomar Medical Technologies (Nasdaq: PMTI  ) have been burned by the downturn, but surprisingly, breast-augmentation supplier Mentor has seen its shares rising of late.

Despite providing guidance below analyst expectations, Mentor's shares remained higher on the potential that its pipeline would continue to succeed. On Thursday, investors gave their approval to the stock, and shares were up 4% on the day. Analysts feel that the domestic breast-augmentation market is stabilizing, which should allow Mentor to become a winning investment.

Investors might want to consider owning Mentor's stock. Although it is valued equally to the market, based on its earnings in relation to its growth potential, it has a better shot at success.

Screening for likability
Mentor started off the year on the outs, but it recently showed up on a screen of companies that have been enjoying growing investor support. The company jumped from a two-star Motley Fool CAPS rating (out of five) in January to four stars today, while also enjoying a valuation below that of the market.

Motley Fool CAPS is a 105,000-member investor community that rates thousands of stocks on whether they will outperform or underperform the market. While it’s not a predictive service, in its first year of operation, the trailing returns of the stocks in the CAPS universe correlated precisely with their relative CAPS ranking. Top-rated four- and five-star stocks outperformed low-rated one- and two-star stocks.

Here are a few of the other companies the CAPS screener found that are currently enjoying significant investor support:

Company

CAPS Rating, January

CAPS Rating Today

Price-to-Earnings Ratio

PEG

Presstek (Nasdaq: PRST  )

**

*****

NE

1.1

Key Energy Services (NYSE: KEG  )

**

*****

12.8

0.7

Mentor (NYSE: MNT  )

**

****

19.4

0.8

Prestige Brands (NYSE: PBH  )

**

*****

14.4

1.2

PepsiAmericas (NYSE: PAS  )

**

*****

14.9

1.1

Sources: Motley Fool CAPS; Morningstar.com as of May 16.

Naturally, this is not a list of stocks to buy and sell, but rather a starting point for further analysis. Investors have raised their outlook significantly on these companies, and that may mean there is still room to move.

A fine filter
It's true that the softening economy is going to play havoc with some of these companies. Lasik eye surgery, for example, has fallen off, while the growth rate for dermal fillers procedures -- injections into wrinkles to smooth them out -- is expected to decline to as low as 10% a year, down from 18% over the previous five years, according to Millennium Research Group. And breast augmentation, which can cost $10,000 for a procedure, is a significant outlay.

Yet some investors think the vanity of the American consumer simply will not dissipate, as CAPS player KipLargo recently noted: "Boomers don't want to look like boomers. Expect nice returns."

In a reply to the top bull pitch by TMFGebinr, CAPS player kwade79 noted that baby boomers do have the money to spend on themselves, and said that they will selfishly do so:

It's a baby boomer thing. As the population ages, this segment will continue to do well. The 50-75 year olds have money and want to stay young. MNT provides a way to do that, or at least fake it. It's a pretty selfish generation (I can say this because I'm IN it), and they will spend their money on themselves.

Takes a CAPS bow
There are many ways to screen for stocks to beat the market. You can use the new CAPS screener to find your own winning investments, but if you want to see what other stocks CAPS investors have slated to outperform the market, head on over to Motley Fool CAPS now. It’s completely free to join.

You can screen, sort, slice, and dice all the picks from any of the Fool's investment services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy is the epitome of good taste.


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