"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
-- Warren Buffett
History seems to show that good investing doesn't necessarily mean picking out complex situations and basing your investment thesis on Nobel-level math. In fact, as the current financial crisis has shown us -- not to mention the Long Term Capital Management hedge fund and many other examples -- too much complexity can often end in calamity.
In an effort to track down some of the companies that may fall into that "fish in a barrel" category, I've turned to The Motley Fool's CAPS community. Using CAPS' stock screener, I looked for companies that have a price-to-earnings ratio below 15, a long-term debt-to-equity ratio below 50%, a return on equity above 12%, and which have been highly rated by the CAPS community.
|
Company |
CAPS Rating
|
Price-to-Earnings Ratio |
Return on Equity |
Long-Term Debt-to-Equity Ratio |
|---|---|---|---|---|
|
Marvel |
**** |
14.1 |
48.4% |
15% |
|
Titanium Metals |
***** |
14.0 |
13.0% |
0% |
|
Merck |
**** |
9.4 |
27.1% |
18% |
Source: CAPS.
These are just three of the results that the CAPS screener spit out; you can run the same screen yourself to see the rest of the companies that made the cut. While these three aren't formal recommendations, they are a good starting point for further research. And on that note, let's take a closer look at each company.
Superhero returns
Marvel's transformation is what makes it such an interesting company to me. At one point, Marvel was in large part a licensing company, lending its collection of superheroes and supervillains to production studios and toy makers, but it's recently taken a big step to change that.
If we go the football metaphor route, we could say that today Marvel is attempting a quarterback keeper. With the launch of MVL Productions, the folks responsible for comic book legends like The X-Men, Spider-Man, and Captain America are now also in the business of making movies.
It's been a bit of a mixed bag so far, as The Incredible Hulk's box office numbers didn't exactly blow the doors off, but Iron Man was very successful.
Now, I don't expect that little ol' Marvel will be staring down Disney
Corrosion resistant
With a perfect five-star rating and more than 2,200 outperform ratings on CAPS, it's obvious that there's something to like about Titanium Metals. Perhaps it's the fact that it's one of the world's leading producers of a metal that's crucial for certain airplane and industrial applications. Maybe it's the company's debt-free balance sheet. Or maybe it's the fact that Titanium Metals' stock has plunged from a pre-recession $36 in 2007 to under $11 today.
Or maybe it's a bit of all of the above.
While we can't be sure exactly when orders at airplane manufacturers like Boeing
Drug your portfolio
Merck's four-star CAPS rating definitely makes it a stock worth consideration, although it doesn't particularly stand out in the world of big pharma on CAPS. In fact, most of the big pharma names, including major competitors like Johnson & Johnson
What makes the group as a whole so attractive? Maybe we can glean something from CAPS All-Star saunafool's pre-election outperform pick on Merck:
Here's a bet for you. Whoever wins the election isn't going to do squat about profit margins at pharmaceutical companies. Furthermore, no matter what happens to the economy, people are still going to take their medicine. All these companies are going to survive the turmoil better than most, and they'll still be standing, just like Elton John, 10 years from now, with compounded dividends aplenty.
Getting down to business
Now the CAPS community wants you. Do you think these stocks make sense? Or is the community off base? Head over to CAPS and join the 135,000 members already sharing their thoughts on thousands of stocks.
Further CAPS Foolishness:
