This Top Stock Is a Winner

Valuation is an imperfect science, but it's as important to fantasy football players as it is to investors. I should know; the guy who picked up the Colts' Pierre Garcon torched me last week. Garcon proved to be one of quarterback Peyton Manning's emerging targets, catching three balls for 64 yards and a score.

Value is value, whether you're assembling a fantasy team or a stock portfolio. But don't take my word for it. "Before you make any decision -- who to draft, trade, start, and sit -- make sure you are following that basic principle; how risky is this move, does it give me the best chance to win?" writes ESPN fantasy analyst Matthew Berry in his annual manifesto.

See the parallels here? Winning fantasy players pick up unloved players for less than market value, while market-beating investors buy oversold stocks for $0.50 on the dollar.

Waiver-wire heroes, unloved stocks ready to rise
These investors knew that SXC Health Solutions (NASDAQ:SXCI) could profit from Obamacare. Their ranks include my Motley Fool Rule Breakers colleague Karl Thiel, who singled out SXC in our April issue, and has since been rewarded.

More bargains are out there. For this weekly column, let's use the Motley Fool CAPS screener to find the stock market's version of waiver-wire heroes like Garcon. We're looking for:

• A minimum $250 million market cap, because we don't draft unsigned free agents.
• A price-to-earnings (P/E) ratio of less than 12, because we're not interested in players that everyone else loves.
• A 10% or better return on equity (ROE), because we want proof that this stock can play at the level we need it to.
• A 20% or worse haircut in price over the past year, because we're bargain hunters.

Today's screen returned 82 candidates that could be worthy of filling roster spots in your portfolio. These six boast superior returns on shareholder equity:

Source: Motley Fool CAPS screen data.

Of these, I'd pick up Penn West Energy Trust for the reasons CAPS All-Star Chemdawg offered in August:

What a ridiculous yield ... Just the dividend pretty much guarantees that you will outperform the market even without much in the way of actual price appreciation. Even from a value standpoint, however, you could argue that there is still plenty of upside on the stock price at these levels also.

There are no guarantees in investing, but Chemdawg has a point: Penn West’s 10.6% dividend yield is pretty sweet. The world's best investors have long used dividends to crush the market, and Penn West's pumped-up payout looks sustainable. The company has paid regular monthly cash distributions since June 2005.

But that's also just my take. What do you think? Would you give Penn West a spot on your portfolio roster? Let us know by signing up for CAPS today. It's 100% free to participate.

More bargain-basement Foolishness:

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