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 Long Term Capital Management 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.

Company	CAPS Rating (out of 5)	Debt-to-Equity Ratio	Dividend Yield	5-Year Annualized Operating Profit Growth	Return on Equity
Wal-Mart (NYSE: WMT  )	***	71%	2.5%	8%	23%
Qualcomm (Nasdaq: QCOM  )	****	1%	2.4%	10%	17%
Teva Pharmaceutical (Nasdaq: TEVA  )	*****	28%	1.4%	22%	13%

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

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

Wal-Mart
Based on the three-star rating, it seems the CAPS community doesn't put Wal-Mart among its favorite stocks. But don't be so quick to skip over this Motley Fool Inside Value favorite. Right now it has a little something for almost everyone.

For those looking for attractive valuations during the market's slump, Wal-Mart has you covered. The stock trades at just 12.5 times trailing earnings. Not only is this below the market's overall valuation, but it's also the lowest multiple Wal-Mart's stock has seen over the past 20 years.

If you're a lover of dividends, Wal-Mart's 2.5% yield may not jump out at you. However, Wal-Mart's payout more than doubled in the five years ending in 2009. Plus, the dividend offers a good amount of safety. Over the past 12 months, Wal-Mart's $1.12 dividend represented a payout ratio of just 29% and it was also very well backed by the company's huge amount of cash flow.

And let's not leave out the growth fans here. As the table above suggests, Wal-Mart hasn't exactly seen blazing growth in recent years, but it has registered solid growth nonetheless. And it appears the company still has plenty of runway ahead of it. As of the end of May, Wal-Mart had more than 4,300 stores in the U.S., but just a combined 731 in the large, high-growth regions of China, India, and Brazil.

Qualcomm
“It’s got to be Qualcomm -- there’s no other option ... It could be a very big deal.”

That's a quote from Will Strauss, an analyst with Arizona's Forward Concepts. Looking toward the rumored release of Apple's (Nasdaq: AAPL  ) iPhone on the Verizon wireless network, Strauss sees dollar signs for Qualcomm. The current AT&T (NYSE: T  ) -exclusive iPhone uses chips from Infineon Technologies, but according to Strauss, in order to connect to the Verizon network, the phones would have to switch to Qualcomm chips.

That would only serve to augment the momentum Qualcomm may already get from the increasing popularity of phones based on Google's (Nasdaq: GOOG  ) Android platform.

Meanwhile, Qualcomm's shares have been hammered over the past year and currently sell for 27% less than they did this time last year. This is despite the company's rock-solid balance sheet, healthy returns on equity, and respectable dividend payout. It doesn't seem like much of a stretch to agree with the CAPS community's four-star assessment of Qualcomm.

Teva Pharmaceutical
I find it very hard not to like the opportunity ahead of Teva, which stands prepared to profit from major patent expirations hanging over the heads of major pharma players like Merck and Pfizer (NYSE: PFE  ) . 

As a manufacturer of generic pharmaceuticals, Teva actually has quite a few growth drivers blowing wind into its sails right now. The upcoming patent expirations are a big one, but the company also expects to benefit from the growth in generic drugs in emerging markets, longer overall life spans (which lead to increased drug usage), and the push to lower health-care costs.

But just how big is this opportunity? According to the company, something like $17 billion, which is the amount Teva's management expects sales to grow by 2015. That kind of growth would mean a compounded annual growth rate of better than 14% between 2009 and 2015.

On a GAAP basis, Teva's trailing results were hit by a legal settlement, which makes the stock's trailing valuation look a bit high. But if we're to believe analysts' estimates for 2010, the stock is trading at a much more attractive forward price-to-earnings ratio of less than 11. With an outlook like Teva's, that seems like a pretty tantalizing valuation.

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

These companies all pay a dividend, but can any of them measure up to what fellow Fool Jordan DiPietro calls the best dividend stock?