Stocks of the Week

The idea of supplying customers with recommendations based on prior shopping habits isn't all that new. If you've signed on for service with Blockbuster or Netflix, you know about the movie recommendations they hook you up with (mine right now include The Year of the Yao and About Schmidt -- does that say something about me?). Shoppers on Amazon.com get a similar slew of suggestions based on their previous purchases.

Investing in stocks may not exactly be comparable to renting a movie or buying a book on Amazon, but with thousands of stocks out there, finding new ideas can often be overwhelming. To help grease the ol' mental machinery, The Motley Fool's CAPS service recently started providing players with daily stock recommendations.

It works like this: CAPS members create a portfolio by rating some of their favorite (and least favorite) stocks. The super-secret stock-of-the-day algorithm, which I've heard has to be run on a Cray supercomputer and uses pi to the 104th decimal place, then starts churning out highly rated stocks for each player based largely on their prior selections.

To give you a sampling of the kinds of ideas that CAPS is doling out, here are the five recommendations the CAPS supercomputer spit out for me last week:

As smart as the CAPS Stock of the Day algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions. With that in mind, I thought I'd kick you off with some thoughts on a couple of these stocks.

All aboard!
The most well-known members of the railroad industry are the Class I rail operators, such as Burlington Northern (NYSE:BNI) and Norfolk Southern (NYSE:NSC). This is for good reason, too; according to the Association of American Railroads, the Class I operators account for roughly 96,000 of the 140,000 total miles of track in the U.S. and take in 93% of U.S. rail revenues.

Genesee and Wyoming is a regional/short line rail operator. At the end of 2006, the company operated more than 6,800 miles of owned or leased track. The company is primarily targeting growth through acquisition -- it will typically buy rail lines from industrial companies like Georgia-Pacific or other regional/short line operators. The company also has significant operations outside the U.S. through railroads in Australia, Canada, Mexico, and Bolivia.

CAPS player MIDD85 likes Genesee and Wyoming not only because it's a "profitable railroad [that] should do well as costs of fuel for trucking rises," but because it's in an industry that a certain investor -- whose name rhymes with "Shmarren Tuffett" -- has been eyeing lately.

Better living through education
"Knowledge is power," as the saying goes. Healthways seeks to empower its clientele by helping them learn more about their health conditions. The company creates health programs to help its members cope with disease and live healthier lives. Among the conditions that Healthways helps patients deal with are diabetes, heart failure, asthma, cancer, depression, and obesity.

For the four years ended in February of this year, the company averaged more than 30% top-line growth per year while maintaining relatively consistent operating margins. In recent years, the company has augmented its organic growth with a few targeted acquisitions, the largest of which was the acquisition of AXIA Health Management for $450 million at the end of 2006.

CAPS All-Stars spikenail and saanca500 have both given the stock an outperform rating in CAPS. Spikenail likes the industry dynamics and recommended that investors "go with healthcare because the baby boomers are getting old." Meanwhile, sannca500 thinks "everything seems to be just right" with Healthways and cites the company's nice cash flow, reasonable debt, industry growth, and experienced management team.

Now for the real question: Are you getting your own CAPS Stock of the Day selections yet? If not, what are you waiting for? CAPS is free, and getting your Stock of the Day picks is much more fun than having me get California's Governator to track you down and give you a wedgie. And don't think I won't do it ...

More CAPS Foolishness:

• 5 Dynamic Dividend Stocks
• Stocks Investors Are Talking About
• 7 Surprising 1-Star Stocks

Netflix, Healthways, and Amazon are Motley Fool Stock Advisor picks. You can find out why with a 30-day free trial of the newsletter.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. Matt tried to give the Fool's disclosure policy a wedgie, but was overpowered by its incredible might. Don't worry, he learned his lesson.