No one has perfect foresight, but let's be honest: The market is full of people who, as Oscar Wilde would say, know "the price of everything and the value of nothing." Far too often -- over the past year especially -- investors have been pitched sensational stock recommendations only to be left high and dry as shares crumble.
To hunt down top-recommended stocks that have been rewarding investors accordingly, I summoned our Motley Fool CAPS community to point out a few four- or five-star stocks that have been shootin' for the moon in recent months. Some are still bargains; others are getting ahead of themselves.
While not formal buy recommendations, these three-month bloomers caught my attention:
|
Company |
13-Week Price
|
Recent Share
|
Forward P/E
|
CAPS Rating
|
|---|---|---|---|---|
|
Caterpillar
|
76% |
$53.05 |
28.6 |
**** |
|
Costco
|
30% |
$58.03 |
18.4 |
**** |
|
General Electric
|
50% |
$16.33 |
17.8 |
**** |
|
Halliburton
|
49% |
$28.97 |
21.5 |
**** |
|
Intuitive Surgical
|
78% |
$254.00 |
38.5 |
**** |
Data from Motley Fool CAPS, and Yahoo! Finance as of Oct. 12.
You can rerun the CAPS screen I used by clicking here.
A closer look at Costco
I'm tempted to fire off the typical reasons why investors should love Costco: Recessions inspire frugality. Companies that sell cheap stuff draw those cheapskates in. More customers, even at lower margins, mean big profit.
All true. But there's more to like about Costco other than the fact that it can rock while consumer spending is in the toilet.
Most retail stores follow a simple approach: Buy merchandise. Sell it for more than you bought it for. Keep the difference as income. Repeat until wealthy.
Costco's business model is a little different. Rather than relying on retail margins to juice its bottom line, it gets it profit predominantly from the membership dues it charges every customer. You can see the importance of Costco's membership dues by looking at different components of its income statement over the past few years:
|
Segment |
2008 |
2007 |
2006 |
|---|---|---|---|
|
Sales |
$71 billion |
$63.1 billion |
$59 billion |
|
Cost of Goods Sold |
$63.5 billion |
$56.4 billion |
$52.7 billion |
|
Selling, General and Administrative Costs |
$7 billion |
$6.3 billion |
$5.7 billion |
|
Net Margins from Sales |
1% |
1% |
1% |
|
Membership Dues |
$1.5 billion |
$1.3 billion |
$1.2 billion |
|
Net Income |
$1.3 billion |
$1.1 billion |
$1.1 billion |
That's pretty incredible: Costco essentially sells merchandise at net margins close to 0%, and relies on membership dues to provide all the profit.
The takeaway here isn't just that Costco can sell cheaper than almost anyone else. It's that it can do so only because it has gotten large enough to where membership fees alone are enough to provide an adequate amount of total net income. This isn't a business model that can be easily replicated by startups: There's a scaling effect, where a retailer has to be big enough, and have enough members, in order to be able to sell products so cheaply that membership dues make up all the profit. That gives Costco a serious moat, even over other well-off retailers such as Wal-Mart Stores
Your turn to chime in
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