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 Pirates of the Caribbean and La Femme Nikita -- does that say something about me?). Shoppers on get a similar slew of suggestions based on previous purchases.

Investing in stocks may not exactly be comparable to renting a movie or buying a book, 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 is run by a computer hooked up to 50,000 hamsters on wheels and uses calculations so complex they'd make Archimedes cry -- is then run. It starts churning out highly rated stocks for each player based largely on prior selections and the current phase of the moon.

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


Atwood Oceanics (NYSE:ATW)

$2.5 billion



Hallmark Financial Services (NASDAQ:HALL)

$254 million



HCC Insurance Holdings (NYSE:HCC)

$3.0 billion



Valero Energy (NYSE:VLO)

$38.6 billion




$466 million


Data from Motley Fool CAPS as of Sept. 7, 2007.

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 Valero.

CAPS-playing Fools aren't just a little bullish on Valero, they're really bullish. A full 96% of the 2,510 ratings for Valero have the stock outperforming the S&P 500. This percentage jumps to an even more impressive 98% when you look just at the CAPS All-Stars -- those players in the top 20% -- who have weighed in on the stock.

It's not a terribly complex story at Valero. The company sells gasoline that people put in their cars, but even more importantly, it is one of the major U.S. refiners of crude oil. As CAPS players have shrewdly noted, refining capacity is tight in the U.S. and it doesn't seem likely that there will be a big expansion any time soon. This is a big plus for Valero and competitors like Western Refining (NYSE:WNR) and Frontier Oil (NYSE:FTO).

CAPS player philis50 is thinking along those lines and recently shared that she believes that "we don't have the capacity to refine all the diesel, gas, and heating oil we need in this country ... Oil at just about any price will produce big gains and Valero is best positioned to deliver."

One of CAPS' very best players, ctmedic00, chimed in as well with a rousing endorsement earlier in the year:

I said it once and I'll say it again... [Valero] refines sour crude rather than light sweet crude. It's cheaper to get so that gives them a head start. I like companies that are doing it a little differently and in this rising oil market I like [Valero] because people are still buying [Suburbans], Hummers and the like.

Now for the real question: Are you getting your own CAPS Stock of the Day selections? 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:

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. Netflix is a Stock Advisor newsletter recommendation. OYO Geospace is a Motley Fool Hidden Gems newsletter selection. 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.