Finding Stocks at a Fever Pitch

The collective power of tens of thousands of investing minds is the driving force behind Motley Fool CAPS, the leading investor-intelligence community. Membership has grown to more than 105,000 investors: professionals, novices, and every level in between.

One of the service's unique features is the ability to not only rate a company on whether you think it will outperform or underperform the market, but to express why you think it will, in as much detail as you want. These analyses, or "pitches," can be as simple as "This stock has a low P/E ratio," or as complicated as a multipage, footnoted thesis. In the context of the overall assessment of the stock, a pitch is another data point to consider.

Throwing strikes
Useful analyses are those that give salient details about a company and its prospects -- on both the bull and bear side -- and the best ones earn recommendations. Not everyone will become famous picking stocks and detailing their reasons, but we do highlight the investors who garner the most recommendations for their analyses as our "pitch-writing superstars." Let's look at these top investors and some of their best recommendations to get a sense of what makes up strong analyses and winning investing.

DemonDoug is not only a top pitcher who's received 620 recommendations for his pitches, he also manages to write a pitch for nearly every pick he makes. And, he's a top-rated All-Star with a 99.97 player rating, to boot. Here are a few of his most recent stock picks.

Source: Motley Fool CAPS. Score is how many percentage points the call is beating (lagging) the S&P 500 from the time of the call.

I think it's an interesting list. So let's dig a bit further into one of them.

Recharge your batteries
I find the Segway personal transporter a nifty idea, although at about $5,000 a pop it's an expensive little errand-runner. Still, with the prospects of $5-a-gallon gasoline more of a reality than ever, it could pay for itself soon enough.

One way to power those transporters is with lithium-ion batteries, which are lighter and more powerful than older-generation nickel-metal hydride batteries. Valence Technology provides these batteries for the Segway, and reported earnings yesterday in which revenue increased as it also received new orders from an electric vehicle manufacturer. Despite the increased demand, Valence still reported a loss, something it has managed to do each and every year for the past 18 years! That it remains in business is a marvel -- top-rated CAPS All-Star goldminingXpert asks, "Why isn't this dead yet?" -- and some investors consider it to be on its deathbed.

CAPS investors are nearly evenly split over the future of Valence, with 53% of those who registered an opinion believing it will outperform the market. Among CAPS All-Stars, however, nearly three-quarters believe it will underperform. Still, the technology that Valence offers and the climate for change related to our dependence on fossil fuels has a number of investors believing the company can pull through.

AndyMoriarity is one CAPS player who thinks it will take just a small number of contracts being signed to push Valence ahead. "Even a tiny number of the potential contracts for lithium phosphate batteries that will be needed to replace gasoline over the medium term will mean huge profits for pure plays in this sector."

Even so, its dependence upon Segway for most of its revenue -- 60% according to the last 10-K report -- has CAPS players like slcarner thinking things are lopsided against the average investor. So far this has proved right, giving slcarner more than 20 points of outperformance against the S&P 500. Here's part of the March pitch:

Some of their financials look weird to me, like the fact that they have had losses up till now, but the primary Preferred stock investor (also the chairman of the board) is getting dividends on his shares to the tune of $8.6 million annually ... (just kind-of weird to me the way [they] structured all of this, some accounting tricks, it is disclosed but makes me think the company is doing some funny things is all). They also seem to be burning through cash very quickly... I also worry that most of their sales come from one company.

Inside pitches
Now, just because a top-rated All-Star investor like DemonDoug writes a top-recommended pitch for a company is no cause to go out and buy or sell those stocks. You still need to perform your own due diligence. But it's worth considering what the All-Stars have written as you make your decision.

A Foolish stance
Step up to the batter's box of Motley Fool CAPS and make your opinions known. Since CAPS is a completely free service, throw as many pitches as you like at the stocks of your choice. You'll be helping your fellow investors to make better investing decisions.