The Best Stocks Right Now

It's been 16 months since we began tracking "The Best Stocks Right Now" with Motley Fool CAPS, the Fool's free online investing community. Amazingly, our CAPS community has quintupled since last January, now encompassing more than 100,000 investors.

We've highlighted some winners in that time, including Canadian Natural Resources (NYSE:CNQ) and Unit (NYSE:UNT), which have risen 55% and 30%, respectively, in the year since they appeared.

Back to the present
Since that article last May, the market has had a rough-and-tumble year, to say the least. The subprime crisis and credit crunch continue to wreak havoc on mortgage-related companies such as Merrill Lynch and National City.

Things may appear bleak, but as Mr. Cramer says, there's always a bull market somewhere. In unsure markets like this, however, the bulls can be more difficult to find. That's where CAPS can help. CAPS players rate stocks to either outperform or underperform the market going forward, and the players themselves are rated based on their performance.

This month, we're omitting exchange-traded funds from the list. Here's this month's list of the top-rated five-star stocks on CAPS.

Data from Capital IQ, a division of Standard & Poor's; Yahoo! Finance; and Motley Fool CAPS as of May 14.

Please bear in mind that these are not formal recommendations. Instead, I offer this list as a jumping-off point for further research. In fact, researching five-star CAPS stocks such as these has proved to be an effective tool for investors.

The bearing of a great stock
For us non-engineering types, it's often difficult to appreciate the mechanics of a car, an airplane, or even a crane. We're so focused on what we can see -- the car driving, the plane flying, and the crane lifting -- that we tend to search only for companies that sell the finished goods -- companies such as Ford (NYSE:F), Boeing (NYSE:BA), and Caterpillar (NYSE:CAT) -- and we end up missing out on some great opportunities beneath the surface. 

This month's top stock may help you reverse that thinking. Ann Arbor, Mich.-based Kaydon serves a wide variety of industrial, robotics, aerospace/defense, and alternative-energy companies with, among other things, its assortment of ball-bearing products and velocity-control goods.

Kaydon expects to benefit from increased capital spending in the global manufacturing sector and the growth of the wind-energy and medical-equipment industries. Moreover, CEO James O'Leary recently noted that the company's acquisition of Avon Bearings in 2007 and its "reprioritized" efforts to increase market share in "high-growth, developing countries," including India and China, "should yield considerable benefits in the second half of 2008 and [into] 2009."

All of these projections depend largely on external factors that may be out of the company's control in the short run. But Kaydon is well-positioned financially to handle adverse market conditions. Its strong balance sheet includes $276 million in cash, versus just $200 million in long-term debt and an interest coverage ratio above 11. The company has more than doubled its capital spending since 2006, and the majority of its operating cash flows are accordingly reinvested in business expansion. But that's not necessarily a bad thing, since return on equity has also increased over the past few years, to reach 17% last year from only 11% in 2003.

CAPS investors are justifiably smitten with Kaydon -- only two out of 185 CAPS investors who have rated the stock believe it will underperform the S&P 500. CAPS player ddberg summed up the majority bullish opinion, discussing the opportunities at Kaydon in February:

A perfect example of seemingly uninteresting businesses being gold mines. Industrial ball bearings, shock absorbers, springs and sealing rings? Not exactly the sexiest products in the world. But take these machine necessities, apply them to the sophisticated worlds of robotics, medical devices (think MRI machines), aerospace, alternative energy, and defense, and establish yourself as the premier supplier of the highest quality products, and all of a sudden the mundane becomes incredibly profitable.

Kaydon has the wind at its back right now, and its stock has risen by 42% since March 10. We wish we could have highlighted the stock at $38, and it's not as dirt cheap as it once was, but it's still worth researching at $55 today.

Learn what CAPS investors are saying about Kaydon by heading to its CAPS page. If you'd like to voice your opinion about this stock -- or any stock, for that matter -- join the Motley Fool CAPS community now, and make your voice heard.