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 Planes, Trains, and Automobiles and La Femme Nikita -- does that say something about me?). Shoppers on get a similar slew of suggestions based on their previous purchases.

Investing in stocks may not be exactly 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 has 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 is run by a pack of Ewoks using a computer twice as powerful as BlueGene, with calculations so complex that they have literally set lesser computers on fire -- is then run. It starts churning out highly rated stocks for each player based largely on their prior selections and the position of the Earth's rotation.

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:



Market Cap

CAPS Rating (out of 5)



$3.1 billion



Gerdau AmeriSteel (NYSE:GNA)

$4.5 billion



Olin Corp. (NYSE:OLN)

$1.6 billion



Synalloy (NASDAQ:SYNL)

$187 million



Pope Resources (NASDAQ:POPEZ)

$222 million


Data from Motley Fool CAPS as of July 13.

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 Pope Resources and PDL BioPharma.

Despite its name, Pope Resources is not a supplier of religious paraphernalia for the Vatican. Instead, it's a partnership that began as a mid-'80s spinoff from wood products company Pope & Talbot. The company gets the majority of its revenue from the management of its two tree farms, which cover a combined 114,000 acres in Washington. The rest comes from providing timberland consulting services to third parties, as well as the use of 2,700 acres of property that management believes can be better used for purposes other than timberland.

On CAPS, the company has had a great record, particularly among CAPS All-Stars -- 41 out of 42 of whom have rated the company a thumbs-up. One of these All-Stars, jpauling352, has given a lengthy review of the stock on CAPS. Regarding the partnership's management, he says:

The managers of the company are very unit-holder driven and look to always give a good return on capital (30+% last year). The company has been around for 150 years and as ... one of the leading timber consultants in the country, has obviously proven themselves in the industry. They also increased their holdings in the company to almost 3% recently. This is not a large number, but an increase in investment is never a bad signal.

Shaking things up
Particularly after the big gain for PDL BioPharma's stock on Friday, investors have done well over the past year, easily surpassing the impressive 20% that the S&P has put up. PDL is a biotech that markets and sells a portfolio of acute-care drugs and is also developing a pipeline of new drug candidates. Its portfolio of approved drugs includes Cardene, for high blood pressure; Retavase, for treating heart attacks; and IV Busulfex, which is used in preparation for bone marrow transplants in a certain type of leukemia.

On the new drug front, Nuvion is perhaps PDL's most promising candidate in the near term. The drug is being tested for its use in treating ulcerative colitis, a type of inflammatory bowel disease. PDL recently announced that it is moving forward into phase 3 testing for the drug.

What may be most interesting about PDL's stock, though, is the saber-rattling coming from hedge fund Third Point. The fund, which also holds a sizeable stake in Inside Value pick MasterCard (NYSE:MA), has been flinging stones at PDL's CEO and chairman and calling for both to resign. Third Point has also been asking (demanding?) that the company hire an investment bank to explore "options to benefit shareholders" -- specifically, selling the company.

Though PDL is by no means a cheap stock, its revenue multiple is at a discount to many of its publicly traded comparables. Third Point obviously believes that a management shake-up or sale could bring this multiple up and create a tidy return for PDL's investors.

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:

Netflix and Amazon are Motley Fool Stock Advisor recommendations. You can find out why with a 30-day free trial of our flagship newsletter. PDL BioPharma is a Rule Breakers pick.

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.