These Stocks Beat Paid-Search Stocks

Over the past several years, Internet companies have demonstrated that you can defy the skeptics and enrich shareholders by making billions of dollars in online search. But I've found investments from another sector, and they're beating the pants off paid-search stocks. I know where you can find out more about them.

Would the real hot stocks please come forward?
The 5,300 stocks that our Motley Fool CAPS community members have rated include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. Clicking the Paid Search tag pulls up a short list of seven stocks that have collectively risen 10.9% in the past year.

But CAPS tags can also lead you to a group of stocks that have outpaced even the market-beating returns of stocks in the Paid Search group: Medical Technology. The nine companies under this tag have averaged an even more impressive 20.4% return in the past year.

Each group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities in each area.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on the company, and why.

For instance, here are a few of the stocks in the Paid Search group:

Now, here's a sampling of Medical Technology stocks that -- judging by interest in the CAPS community -- investors may want to consider.

Diagnosing for dollars
With the U.S. population aging, investors are becoming bullish about prospects in many sectors related to medical care. As the baby boom generation gets older, the demand for medical services will increase, and the companies providing the relevant technology and products are in an enviable position. But this macro trend in itself doesn't make them good investments.

Motley Fool Stock Advisor recommendation Lab Corp. is one company doing the heavy lifting in the medical industry -- it performs the blood diagnostics your doctor requests to determine your condition. The diagnostics business is a tough sector -- margins are constantly under pressure as managed-care organizations and the government are continuously looking for ways to reduce health costs.

But even in this unfriendly environment, Lab Corp. has managed to grow its top line an average of nearly 10% over the past five years. Making smart acquisitions and snagging a big contract with UnitedHealth Group have kept the momentum going, though debt has been increasing to finance the growth. While the stock has done little this year as the valuation catches up with the growth prospects, CAPS investors remain overwhelmingly bullish on Lab Corp., with 306 of the 314 investors rating the company believing it will outpace the market going forward.

Not-so-intuitive growth
A company providing medical technology into a much less cost-constrained market is surgical-device maker Intuitive Surgical. The developer of the da Vinci system for assisted, minimally invasive surgery has long been a popular story with investors. So, as you might expect, it's a pricey stock. While David Gardner braved a recommendation of the stock in the Motley Fool Rule Breakers service almost three years ago, when the stock traded at 71 times trailing earnings, growth has exceeded even these lofty expectations.

The big question today is whether Intuitive Surgical can keep clearing the high bar that investors have set for it. I agree that the company may very well be the best stock of 2008, thanks to a strong moat and a solid recurring revenue base from its deployed robots. But the high valuation makes it a risky investment, and those holding shares should be prepared for volatility, especially considering that the stock has dropped more than 25% in the past six weeks. Still, more than 94% of CAPS investors favor the company's odds in beating the S&P in the future as well.

Before you buy ...
Of course, investors shouldn't look in the rearview mirror to see where they should be investing now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify macroeconomic trends that may significantly affect investments. Just make sure to do your own due diligence, rather than following crowds or individual recommendations.