3 Stocks That Just Make Sense

"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 recent financial crisis has shown us, too much complexity can often end in calamity.

In an effort to track down 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 are earning 10% or more on their equity, have insiders that own a piece of the company, pay some sort of dividend, and have a high rating from the CAPS community.

Source: CAPS.

While these three companies aren't meant to be formal recommendations, they are a good starting point for further research. And on that note, let's take a closer look at why these potential investments might make a whole lot of sense.

Hasbro
In the era of Electronic Arts (NASDAQ:ERTS) and other video game giants, Hasbro may seem sadly outdated. But is it?

No matter how you cut it, the company is still an absolute powerhouse in the toy kingdom, claiming brands such as Transformers, G.I. Joe, Tonka, Milton Bradley, Playskool, and Parker Brothers. I mean, we're talking real classics here, from Nerf footballs, to Monopoly, to Baby Alive. And it's not like Hasbro is missing out on the video game era completely. It has a long-term licensing agreement with Electronic Arts to create video games based on Hasbro's brands.

The financials for this top-dog toy maker certainly don't portray a dying company. Though the recession has kept growth to a minimum over the past couple of years, Hasbro's earnings per share have nearly doubled since 2005. The company produces very healthy amounts of cash, and has more than enough left over after capital spending to keep that dividend growing. And while it does have a decent amount of debt on its balance sheet, interest payments are more than adequately covered.

"But what about the future?" you might ask. An end to the recession and a U.S. unemployment rate in the single digits would be a big help. However, there's big opportunity outside of a stateside recovery. Acquisitions have been one avenue for growth, and in 2008 the company picked up game maker Cranium. Maybe more exciting, though, is international expansion. In 2008, Hasbro expanded its operations in China, Brazil, Russia, Korea, and the Czech Republic.

Sounds to me like this one just might make a whole lot of sense.

American Science & Engineering (AS&E)
AS&E may not have the nifty toys that Hasbro does, but the company helps keep us all safe so that we can enjoy the fun and games.

AS&E makes X-ray systems that help government agencies prevent terrorism, trade fraud, drug trafficking, weapons smuggling, and illegal immigration. The company faces significant competition, including from the much larger SAIC (NYSE:SAI), but armed with its proprietary Z Backscatter technology, AS&E's management thinks the company has an edge over competitors.

Lending serious credence to the company's claims are AS&E's financials. The company has nearly tripled its revenue since 2005, and it's expanded its net margin from 12.7% to 15.2%. And for investors still squeamish about debt, there's nothing to worry about here: AS&E has no debt to speak of.

While this X-ray architect depends heavily on sales to one customer -- the U.S. government -- it doesn't seem like protecting airplanes, ports, and borders will take a budget back seat anytime soon.

Montpelier Re
When consumers and businesses need insurance, they turn to insurers. But what about when insurers want insurance? They turn to reinsurers like PartnerRe (NYSE:PRE), XL Capital (NYSE:XL), and, of course, Montpelier Re.

Montpelier Re's primary business is taking on some of the exposure that insurers assume when writing property and casualty insurance -- primarily insurance against catastrophic events. Montpelier is paid for this service and, in exchange, agrees to either pay its customer when it's hit with losses above a certain point or share the losses proportionately.

Similar to standard insurance, the key to success in this domain is being smart about what risks you take on, and how you price those risks. And though periodic catastrophes can take a big bite out of Montpelier's earnings, the company has managed to put up nice earnings in recent years.

But what makes Montpelier worthy of a four-star rating on CAPS? Let's turn to CAPS All-Star CREWatcher, who rated the stock an outperformer last year, providing a laundry list of reasons to like the company:

A bargain. Priced at under book. I expect price to exceed 1.5 x book after we get through this recession (depression?). Further, I expect book value to improve from here.

Getting down to business
Now the CAPS community wants you. Do you think these stocks make sense? Or is the community off base in its faith? Head over to CAPS and join the 145,000 members already sharing their thoughts on thousands of stocks.

Concerned that a stock in your portfolio doesn't make sense? Check out my three signs of a terrible investment.