Today's Hot Stock Tip

I've caught some flak from readers in the past who felt tricked into clicking on a headline.

"The One Stock You Must Buy," for example, turned out not be about a specific company, but rather the next small cap you could find that -- like both Microsoft (Nasdaq: MSFT  ) and Wal-Mart (NYSE: WMT  ) back in the day -- was led by a dedicated founder who owned a chunk of shares, was fiscally conservative and generating tons of free cash flow, and was profiting from a wide market opportunity.

Then there was "The Market's 10 Best Stocks," which weren't the 10 best stocks going forward, but the 10 best of the past 10 years.

To a point, I can sympathize. But I justify both of these headlines because they teach a valuable investing lesson: If you want to make big money in the market, you need to look at small, well-run companies.

The good news today, however, is that "Today's Hot Stock Tip" isn't a clever headline or a play on words. It's an actual stock you could buy today that I think is high on potential and low on price.

It also just happens to be a small, well-run company.

There's a legitimately good idea coming
Sure, you're probably skeptical. Why would I tell you my best idea when I could otherwise go out and buy it myself? If I'm right, after all, I could make a heckuvalot more money.

Three reasons:

  1. I jumped the gun on this volatile market and have largely exhausted the cash I was hoarding. (See the CarMax (NYSE: KMX  ) shares I loaded up on at $17.)
  2. Thanks to this volatile market, I think there's plenty more where today's hot stock tip came from.
  3. I don't think most of you are going to listen to me anyway -- given that I just admitted to loading up on CarMax at $17.

With that preamble out of the way, you're primed for my idea. Here goes …

You've likely heard of it …
Tom Gardner recommended Columbia Sportswear (Nasdaq: COLM  ) to our Motley Fool Hidden Gems subscribers back in June 2005. Frankly, I didn't think it was a very good pick. (Back then, though, I didn't have the "senior" in my "senior analyst" title, so nobody much cared what I thought.)

The problem with the recommendation was that Tom had modeled for 13% annual revenue growth through 2010. But Columbia was a company that had struggled to get its footwear operations off the ground, had never sustained a greater than 13% annual growth rate for more than two consecutive years since going public, and was facing new competition in an economy that (back then) was flirting with recession. (We know what's happened since.)

In the three years since Tom highlighted Columbia, it's grown the top line at 5.5%, 11.4%, and 5.3%, respectively. As you might imagine, the returns haven't lived up to Tom's expectations. In fact, the stock is down.

This isn't to knock Tom, of course. Not only is he my boss (I love you, Tom), but he's made a lot of good picks over the years and advocates wide diversification. All I'm pointing out is that Tom Gardner liked this company a lot three years ago -- today it's cheaper, stronger, and poised to actually put up good numbers.

Allow me to explain
Footwear has long been both a problem and an opportunity for Columbia. Given the brand's appeal to the outdoorsy, hiking boots and other shoes should be an easy sell. But the products and marketing strategy haven't been up to snuff, and efforts have been trampled (pun intended) by names like Wolverine Worldwide's (NYSE: WWW  ) Merrell.

The company, however, has a new segment head in place -- Tim Bartel, who came over from Keen -- and a new technology called Techlite. Those two things should work to make the product more appealing. It also owns strong brands in Columbia, Sorel, and Montrail that cover multiple footwear segments.

Then there's the strategic shift that will see the company begin to open its own flagship retail stores rather than rely solely on retailers such as Dick's Sporting Goods (NYSE: DKS  ) and Nordstrom (NYSE: JWN  ) . While its own retail sales won't displace sales to retailers, Columbia's stores should heighten its brand profile and allow the company to feature more premium apparel.

Finally, Columbia remains among the most shareholder-friendly and well-run companies out there. It's majority-owned by the Boyle family, it's cash rich, it pays a steady 1.7% dividend, and it's historically earned fantastic returns on invested capital.

Put it all together
Columbia is ripe for a turnaround. And while I won't be so bold as to forecast 13% annual growth over the next five years, the current valuation bakes in just 3% to 4% growth in perpetuity. I believe Columbia will do much better than that, and the company's balance sheet will continue to benefit shareholders through dividend payments and share repurchases.

So there's today's hot stock tip, and I hope you'll agree it's legit. If you'd like to take a look at the other small, well-run companies we're researching and recommending at Hidden Gems, click here to join the service free for 30 days. Despite Columbia's underperformance thus far, our collection of small, well-run companies is ahead of the market by more than 20 percentage points on average.

Tim Hanson owns (a lot of) shares of CarMax. Wal-Mart, Microsoft, and CarMax are Motley Fool Inside Value recommendations. Columbia Sportswear is a Hidden Gems pick. The Fool's disclosure policy is honest about recommending the gin & tonic on any hot summer day.


Read/Post Comments (29) | Recommend This Article (67)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 24, 2008, at 5:40 PM, steinbrock wrote:

    Your e-mails spend too much time talking about the money you made (past tense) and not enough about your headline, ie: multibagger or 2 top picks. It takes me too long to read all your success stories until I can find what I really want to read. I don't have enough time in the day and wish you would arrive at the original point more quickly. Thanks for listening.

  • Report this Comment On July 24, 2008, at 7:03 PM, joshbk wrote:

    I thought the whole point of TMF was to avoid all the hype. I can understand them charging for some services, but where do you draw the line between paying off a fund manager to handle your money and paying for individual stock picks?

  • Report this Comment On July 24, 2008, at 7:47 PM, luscious25 wrote:

    this is the first time i have personally managed my own portfolio before i had it professionally managed and lost a good amount of money due to my portfolio being heavy in finacial and real estate i find this website way more helpful than my investment manager i think you guys are doing a great job!

  • Report this Comment On July 24, 2008, at 8:26 PM, scott0807 wrote:

    tim, just returned home from carmax with a 2004 camry for honorable second daughter. wow... what a great experience, other than writing the check of course. my three son's (no pun) will also get carmax cars (it may add something to the stock price, but probably not the $4/shr your down now). anyway, i'm going to buy kmx some too. this IS the model for purchasing high- quality, late-model, used cars. scott

  • Report this Comment On July 24, 2008, at 8:28 PM, netbumb wrote:

    I'm with Josh and Steinbrock.........just give us all winners in a nice concise list, and do it all for free.

  • Report this Comment On July 25, 2008, at 8:32 AM, KWT8011 wrote:

    I actually rec'd this article, and I hope you keep up with a more "to-the-point" writing style. Anyone who complained about this piece ought to read the two articles you linked at the beginning.

    IF you want free stock picks, go on CAPS and stalk some of the better players, or check out the articles TMF puts out during the week, such as "1-star stocks allstars love," etc. Better yet, click on the All headlines link and look for articles about specific companies, there tends to be less story telling there.

  • Report this Comment On August 01, 2008, at 1:13 PM, gshubert wrote:

    I have cable TV if I want to waste my time on infomercials. Please add "Advertisement" to your headlines so I remember NOT to click them.

  • Report this Comment On August 01, 2008, at 2:36 PM, GreenbackCafe wrote:

    @gshubert

    It already says "Advertisement", but it's in the URL - "fool.com". ;-)

  • Report this Comment On August 01, 2008, at 4:00 PM, 1smartbroker wrote:

    As a financial advisor with 22 years of experience with a major wirehouse firm, I read all sorts of research from a variety of respected sources, including TMF. Comparatively speaking, TMF is over rated. It produces all kinds of blaring headlines about who not to trust in the financial services industry, and how advisors, money managers, etc. are all out to steal investors' money. Please. If TMFspent half the time producing quality research that they do crowing about past results....turn page, click here... and warning who not to trust, I'd remain a member. But the deceptions they engage in with advertising, the "subscribe here reports", and the teasers, remind me of the old emails I used to receive from now- defunct reasearch web sites (did they all join TMF?) that used to hammer people with big headlines, breathless lead-ups....and just enter your credit card number here, please. I don't mind paying for research, not at all. What I mind is the relentless fees and charges that they want you to pay for their next great report and the degree of self congratulation they resort to. Reminds me of the funds and adviors they warn people about.

  • Report this Comment On August 01, 2008, at 4:44 PM, aladdina wrote:

    I, too, grow weary of the long e-mails promising information that takes you 20 minutes to get. Luckily, TMF publications are a whole lot more concise. But to me, the real difference between TMF and snake oil (i.e some other financial advisor services), is that TMF publishes a scorecard for all their recommendations. If it's snake oil, it wouldn't produce results--they prove that they do.

  • Report this Comment On August 01, 2008, at 5:48 PM, fire56 wrote:

    ditto to the ads and hype, I haven't made

    a dime with the "Fools"

  • Report this Comment On August 01, 2008, at 6:28 PM, jbruff1 wrote:

    I concur with this criticism about roundabout advice, teasers, and extreme wordiness. What I've sifted through during 28 days of my 30-day Trail gives me the impression that David, Tom and the staffers marching to the same beat are more focused on their literary abilities than on their stock analysis. I, too, have too little time to "sift" for what I need and was expecting. I'm outta here! But I do appreciate that you allowed me this Trial subscription.

  • Report this Comment On August 02, 2008, at 8:19 AM, adlib5 wrote:

    I have gotten extremely tired of the pitch. I have learned a lot here although the 1,000$ I spent on various subscriptions here would now be much better spent on stock and real research. I do get some value out of the CAPS community that I appreciate but TMF is mostly hype and selling you something new every time you turn around. Their recs are not that unique and I have followed a lot of them with real money and have not ussually done as well as the stuff I found on my own.

    I am fairly happy with my portfolio and they helped me to learn how to build one but you have to read a lot of TMF a bit askance and do a lot of other research. The long and short of it is that I have simply outgrown the need for this tool as there are much better out there for less money. I would pay more for real in depth research and reporting but they do not do anything worth what I would happily pay to give the whole picture and real analysis. When they make a rec they tend to just explain the little bits that they are hot about, not the whole enchilada..

    For my Money and time a simple subscription to barrons and the WSJ although Rupert is quickly removing those as serious resources and just trying to remain well read in the news in general will be enough and should pay even better although I have learned some important stuff here.

    Just my 2 cents

  • Report this Comment On August 02, 2008, at 2:59 PM, TMFMmbop wrote:

    Folks,

    I appreciate all of your comments. I'm just not sure why you're targeting this article with such vitriol. Does this article contain a link to Hidden Gems? Yes. I work for the product. It pays my salary. If people were not aware it existed, however, it would not.

    But please do not feel the need to subscribe. Just take my stock idea -- Columbia Sportswear, which I spend 9 paragraphs describing -- and either agree or disagree with it. If you find it interesting, look into it some more. If you don't, don't. But, and this will come as a shock to some of you, what is above 1)is not a long email 2) does not "crow" about past results (12 words at the end reference our track record) 3) is actually unique "real" analysis (The few firms that follow COLM have generally been downgrading the stock recently, just as I think it's gotten cheap) and 4) is not "excessively wordy" (if you think an article that's less than 1,000 words is excessively wordy, then you're going to love our next initiative: investing picture books).

    Tim Hanson

  • Report this Comment On August 02, 2008, at 3:22 PM, meleber wrote:

    LIKE SO MANY OF YOUR WRITERS

    I SEE TODAY, I AM GETTING TIRED

    OF BEING DIRRECTED INTO BUYING

    ANOTHER OF YOUR SUSSCRIPTIONS. WHAT IS INCLUDED IN OUR SUBSCRIPTION AND WHAT IS NOT. I KEEP READING

    AND END UP BEING ASKED TO SUB

    SCRIBE AGAIN.

    MKLEBER NEWTON, MA

  • Report this Comment On August 02, 2008, at 4:14 PM, mitheralhammer wrote:

    Mr. Hanson,

    Nice rebuttal. As to the article itself I do believe that the information was concise and well researched. I think that too many people are interested in something free and not in learning how to find the picks themselves. I was very interested to read how you went about your analysis. Thank you for you time.

  • Report this Comment On August 02, 2008, at 4:48 PM, Smagma wrote:

    All stock newsletters have a pitch. Often I skim through an article here expecting to be fed a lot of fluff and BS and asked to buy the subscription before I can even understand which company the author is referring to... which is annoying but understandable (as Fool is selling their own product to their readers. I did try the trial subscription earlier this year, and was a bit disappointed with the amount of filler added to research documents.

    Anyhow, I didn't think this one was too antagonizing. The article delivered what the headline depicted. He shared his opinion on a particular stock and did it directly instead of leading his readers around a maze. So I appreciate Mr. Hanson's work and will look into this company during the next week.

  • Report this Comment On August 03, 2008, at 12:14 AM, mikegtown1 wrote:

    Reads like a typical marketing come-on. Sorry, but without a time machine, didn't see any value in this one.

  • Report this Comment On August 03, 2008, at 12:08 PM, TMFMmbop wrote:

    Why would you need a time machine to buy shares of Columbia Sportswear today? That's just inane.

  • Report this Comment On August 03, 2008, at 3:13 PM, NewMFool wrote:

    I've only been a "fool" for two months and subscribe to the Income Investor.

    Within the first week of receiving FoolWatch Daily & Weekly, I knew I paid (way)

    too much for the subscription and additional information/analysis.

    But I'm stuck with it for another 10 months (no refunds). Would be nice to be able to have quarterly/monthly subscriptions?

    All of their(MF) ads, analysis, etc, all tout gains of this or that (since added

    to (their) portfolios), which cover months to years ago. This is all hindsite and

    does nothing for us newer investors who need more specific up-to-date/current

    returns and projections.

    Maybe they(MF) should take all of thier sales pitches for this or that subscription

    out of FoolWatch since we all(?) already subscribe to the areas we are interested in.

    Then send out occasional specific subscription e-mailings to people who do not already

    subscribe to "xyz news" when they are running a "special" for new subscribers for it.

    I seen lots of other posts within "Comments from our Foolish Readers" in

    other articles that are also "complaining" about these MF practices.

    Will they ever listen?

  • Report this Comment On August 03, 2008, at 3:15 PM, NewMFool wrote:

    ...and their message posting software screws up the actual formating the original was entered in as.

  • Report this Comment On August 03, 2008, at 3:18 PM, NewMFool wrote:

    (2nd try) ....and thier msg posting software screws up the format was originally written in.

  • Report this Comment On August 03, 2008, at 3:21 PM, NewMFool wrote:

    (3rd try) ....and thier msg posting software messes up the format was originally written in.

  • Report this Comment On August 03, 2008, at 4:08 PM, NewMFool wrote:

    I guess I "spoke" too early on some of my issues.

    Appears that FoolWatch can be subscribed to by anyone off-the-street

    and do not have to be a premium subscriber.

    So, their(MF) constant sales pitches are geared to these people.

    In this day 'n age of targeted marketing, could do a better job?

    I've also noticed lots of reworded/changed headlines of duplicate

    articles and ones with "originally published xxxxxx and updated"

    at the end. But don't indicate "updates".

    Maybe a link to the original with footnotes of them?

  • Report this Comment On August 03, 2008, at 7:46 PM, briboe wrote:

    NewMFool - I couldn't agree with you more. I subscribed to the Stock Advisor based on their gimmicky ads, I figured $99 was cheap enough. I emailed them last week so my subscription doesn't autmatically renew in a year. The information is outdated by the time you receive it, all of the articles are garbage and solicitations, and the website is very confusing to use.

  • Report this Comment On August 03, 2008, at 11:32 PM, NewMFool wrote:

    (would not let me edit my prev post)

    I guess I "spoke" too early on some of my issues.

    Appears that FoolWatch can be subscribed to by anyone off-the-street

    and do not have to be a premium subscriber.

    So, their(MF) constant sales pitches are geared to these people.

    In this day 'n age of targeted marketing, could do a better job?

    I've also noticed lots of reworded/changed headlines of duplicate

    articles and ones with "originally published xxxxxx and updated"

    at the end. But don't indicate "updates".

    Maybe a link to the original with footnotes of the updates?

  • Report this Comment On August 04, 2008, at 1:28 PM, grescentre wrote:

    Like reading a history book in school

  • Report this Comment On August 04, 2008, at 1:31 PM, plantoretire1day wrote:

    To Tim and Fools.com,

    I think 'folks' (especially subscribers) are burned out with the past and present teaser commentary. If you have a hot stock tip, why not put it in the first paragraph and then a concise, but easy to follow, justification for it thereafter? I know you like to be amusing and make the articles personal, but weave it in at the end of the justification or in the conclusion or leave it out. However, I do like the lighthearted way some articles are written.

    But frankly, right now I am not amused. Being told a stock adviser is not making the best stock decisions (in the same article he is making a stock recommendation) is NOT entertaining.

    (Although I don't think the purchase of Carmax at $17 was unwise, the market is unpredictable and that can be a good thing too, however buying stocks in large quantities can increase risk as well as potential rewards).

    We are asking that Fools.com commentary get to the point (see how I deviated above?). We should not have to search for the punchline, especially as subscribers.

    Happy customers, keep them coming back for more, unhappy customers can lead them to seek other suppliers or doing without the goods period.

    Fools.com took a survey last year, are they acting on the results or was that just another way to 'quiet the natives'?

  • Report this Comment On August 06, 2008, at 11:23 PM, kctreecare wrote:

    When I signed on to TMF I was pulled in because of the long term investment strategy. Which is like Warren Buffet's strategy. One news letter that I could find time to read a month. Often I do not know if I am reading the news letter or the advertisement that you have sent me. I am sure it is because I have not paid close attention to tell the difference.

    My main lost of trust is that when you signed me up you told me that your team would do research and look for good investments for your subscriber's.

    Now you send me a long story and want me to pay you more money for your better picks that you came across.

    It seems that you have sold us out to make yourself some quick cash which saddens me. You portray yourselves as good old boys that want to help the common investor but really its about helping us some but lets see how much money we can make, is really the bottom line.

    I guess I was the fool to believe that there are companies out there, like myself that believe & feel that we should always be giving our client a good value for there money.

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