3 Stocks That Just Make Sense

"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
-- Warren Buffett

History seems to show that good investing doesn't necessarily mean picking out complex situations and basing your investment thesis on Nobel-level math. In fact, as the recent financial crisis has shown us -- not to mention Washington Mutual, AIG, and many other examples -- too much complexity can often end in calamity.

In an effort to track down some of the companies that may fall into that "fish in a barrel" category, I looked for companies that have shown signs of brilliance. Specifically, I focused on companies with a conservative balance sheet, a dividend, annualized operating profit growth of 5% or better over the past five years, and a return on equity above 12%. I've also included the ratings that the Motley Fool CAPS community has given each of these stocks.

Source: CAPS and Capital IQ, a division of Standard & Poor's.

These three companies above aren't meant to be formal recommendations, but they are a good starting point to start some further research. On that note, let's take a closer look why these potential investments might make a whole lot of sense.

UnitedHealth Group
Based on the numbers above, it's easy enough to see why UnitedHealth might make sense to investors. But at the same time, with a forward price-to-earnings ratio of less than 10, it's quite obvious that investors have been avoiding UnitedHealth's stock lately.

UnitedHealth hasn't been the only such stock making investors squeamish. Shares of competitors Humana (NYSE: HUM) and WellPoint (NYSE: WLP) are trading at similar or lower multiples. The reason, of course, is the uncertainty over the impact that the health-care reform bill will have on the industry.

But what did the members of UnitedHealth's management team have to say about that uncertainty? They went ahead and gave the stock's dividend a serious boost, taking it from a silly $0.03 per year to a much more worthwhile $0.50. That certainly suggests that management isn't sweating the impact of reform nearly as much as investors are.

Procter & Gamble
I shouldn't have to go to any great lengths to confirm that P&G is a great company and an investment worth owning. The company's brand portfolio is nothing short of incredible, featuring a seemingly endless number of true consumer staples including Gillette, Zest, Old Spice, Oral-B, Crest, Tide, and Charmin -- just to name a few.

But what determines whether P&G's stock is actually worth buying? Valuation, of course. And if you ask my fellow Fool Morgan Housel, based on a cash-flow valuation, P&G's stock is one that you should be buying right now. Morgan also points out that China's unpegging of the yuan could provide a nice boost for P&G.

And if that's not enough for you, I'll give you one more reason to like P&G right now. Right now, 10-year Treasuries are paying investors 3.1%, while P&G's stock is yielding 3.2%. So you can take a fixed 3.1% payout on a fixed government bond, or you can take a slightly better 3.2% yield, and get a piece of one of the best companies on the planet to go with it.

Hasbro
The products that Motley Fool Stock Advisor favorite Hasbro makes aren't the same kind of staples that P&G's are, but they're enduring favorites nonetheless. With video-game makers tripping over themselves to try and cook up the next big hit, Hasbro sits on a gold mine of classic parent-approved toys and games, including G.I. Joe, Nerf, Monopoly, Trivial Pursuit, and Mr. Potato Head. And when parents grew concerned about toxic toys from competitors Mattel (NYSE: MAT) and RC2 (Nasdaq: RCRC) a few years ago, Hasbro managed to keep its name very clean.

The value of Hasbro's toy collection and the tempting valuation of its stock came to the fore last week, when the company had to fend off advances from a private-equity company hoping to take it private. The fact that the company will continue to stay public should be good news for CAPS members, because they have very high hopes for the company over the long term. As CAPS All-Star meecho put it earlier this month:

People pay a premium for entertainment, and for quality brands. Hasbro has both of these in spades. Boosting dividends with room to spare shows how shareholder-friendly this company is. A few potential blockbuster ways to monetize its deep reserve of brand names (Battleship?) makes [Hasbro] look like [Marvel] in some ways. Small cap growth potential with big cap dividend payout while you wait, what's not to like?

Getting down to business
Now the CAPS community wants you. Do you think these stocks make sense? Or will they disappoint investors? Head over to CAPS and join the 165,000-plus members already sharing their thoughts on thousands of stocks.

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