The following article is part of The Motley Fool's "Stock Madness 2006," based loosely on the annual NCAA College Basketball Tournament, a.k.a. "March Madness." Throughout the competition, our writers and analysts will engage in head-to-head competition. You, dear readers, are the fans and referees - after you read these exciting duels, your votes will determine who moves on to the next round of play. The writer who survives the tournament will be our champion and most valuable "coach."
But, please, make no mistake -- "Stock Madness 2006" is a GAME!
It's round 1 of our Foolish March Madness tournament, and while I definitely have opening-night jitters, I think my team's underappreciated value will surprise some folks.
Motley Fool Income Investor
selection Enterprise Products Partners
In the back court, we've got 3Com
The most important matchup in this first-round contest is between Asset Acceptance Capital and my rival Rex's Motley Fool Hidden Gems pick Portfolio Recovery Associates
But investing is about making money, and as much as I like Portfolio Recovery, I find the market's current valuation for Asset Acceptance Capital far more interesting. Its price-to-free cash flow multiple of 8.5 compares quite favorably to Portfolio Recovery's 13.5. You don't see such a multiple too often, and it's especially surprising given Acceptance's recent struggles with telecom debt.
My opponent also has a good team, with companies that should perform well for years -- but that's exactly what investors expect them to do. Not nearly as much is expected of the companies on my team, but I think they'll also rise to the challenge. Add it all up, and I think we have a good chance of not only moving on to the next round, but also making a little noise in this tourney.
Rex Moore's rebuttal
Nate's write-up is full of code phrases for trouble: "underappreciated value," "overlooked and abused," "struggled to compete," etc. I recommend steering clear of these higher-risk plays. Instead, concentrate on steady, sometimes even boring, excellence.
You can feel confident buying stocks like Johnson & Johnson and Procter & Gamble and locking them away for years. You want long-term excellence? With dividends reinvested, P&G is among the top 20 best-performing survivor stocks from 1957's original S&P 500. I think there's a good chance we'll look back in another 50 years and find it's still in the S&P 500's top 20.
Nathan Parmelee owns shares in Enterprise Products Partners and Portfolio Recovery Associates, but has no financial stake in any of the other companies mentioned. Rex Moore owns shares in Johnson & Johnson, Procter & Gamble, and Portfolio Recovery Associates. The Motley Fool has an ironclad disclosure policy.