Stocks Flying Under the Radar

The 135,000-plus investors in The Motley Fool's CAPS community are constantly applying their aggregate knowledge to seek out market-beating returns by predicting which stocks are poised to over- or underperform the market. However, there's another form of community intelligence at work within CAPS: blogs maintained by members. These provide a platform to enable larger discussions on the never-ending subjects ranging from individual stocks to home prices in California.

One of our best bloggers is CAPS All-Star and Motley Fool Pro contributor TMFEldrehad. Having recently picked his CAPS blog, EldrehadsPick's, back up, he selects one stock every month that he believes will outperform the market. So far, so good: His picks have beaten the market by an average of nearly 14 points each:

Source: Motley Fool CAPS. Table does not show all picks. *Number of percentage points by which the pick is beating (lagging) the S&P 500 from the time of the pick.

In addition to using CAPS to track his performance, TMFEldrehad also puts up a lengthy blog post discussing the unique strengths and opportunities that he sees with each pick. Will his June 2009 pick, MWI Veterinary Supply, continue in that winning tradition? Let's look at a few key sections from his MWI write-up.

History / Profile
As the name implies, the company is a distributor of veterinary supplies with 2/3 of its sales related to the companion animal market (pets) and 1/3 to the production animal market (livestock) ...

Thesis:
I believe this company's small market cap (around $366M) has kept it off the proverbial radar of many -- furthermore, I believe that the recent slowing of the top line growth rate has helped create a nice value proposition. Mr. Market tends to be incredibly myopic and is, in my opinion, valuing this company more on recent top line growth rates than it is on its multi-year history of far more robust growth -- something I would expect the company to return to once macroeconomic conditions change.

Risks:
I believe that the biggest risk facing the company is possible industry consolidation. While [MVS] is one of the bigger players in this space, the industry is still somewhat fragmented -- which leaves open the opportunity for someone to consolidate the players, gain increased economies of scale, and gain a real competitive advantage. That said, I believe that the company's strong customer focus and demonstrated customer loyalty offer at least some protection against this possible threat.

The Bottom Line:
These are, indeed, interesting times to be an investor. When looking for an investment candidate among macroeconomic turmoil I think it's helpful to ask the following questions:

No. 1: Will people keep spending as much as they used to?
No. 2: If not, which businesses will be more likely to attract a greater percentage of the money that is being spent?

If most families are anything like ours, looking after the health and well being of one's furry, feathered, or scaly family members is one of the things that will continue to be relatively high on the list of financial priorities. Given that 2/3 of this company's revenues come from the pet market and 1/3 from the livestock market, this should continue to help insulate this company from continued macroeconomic malaise ...

Of course, this is just a small selection of what TMFEldrehad has to say about MWI. To read the whole discussion, you'll need to continue on to his blog post. Otherwise, feel free to head directly to CAPS, where you can join the discussion on more than 5,200 rated stocks or even start blogging yourself. It's fun, it's free, and you might just learn something. So sign up today and join the discussion!