When Warren Buffett speaks, we Fools love to listen. After all, with so many different stock-picking systems out there, it's useful to know exactly what the Oracle himself looks for in a purchase.

In the 1992 Berkshire Hathaway Annual report, for example, Buffett shared this extra-golden nugget of investment wisdom: "The best business to own is one that -- over an extended period -- can employ large amounts of incremental capital at very high rates of return." Simple, right?

In today's info-overloaded financial world, it's easy for investors to forget that companies exist for one basic purpose: to take money from investors and earn a return on it.

It only makes sense, then, to focus our stock search on the best businesses, the ones that generate the highest rates of return.

Return on CAPS
With the help of our Motley Fool CAPS community, I'll attempt to unearth Foolishly loved companies that consistently compound wealth at exceptional clips. In addition to having trailing three-year average returns on capital (ROC) of more than 20%, these stocks have received a four- or five-star rating (out of five) in our database:

So, without further ado:


ROC (Average, Past 3 Years


CAPS Rating

Western Union (NYSE: WU)


Data processing and outsourced services


Fluor (NYSE: FLR)


Construction and engineering


Joy Global (Nasdaq: JOYG)


Farm and construction machinery


Colgate-Palmolive (NYSE: CL)


Household products


GlaxoSmithKline (NYSE: GSK)




Data from Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.

Of course, don't hurry out and buy these stocks just yet. You'll need to conduct some due diligence of your own, considering things like valuation, management quality, and whether its competitive advantages are durable enough to continue posting remarkable returns.

With that said, let me help you get started on one in particular.

Pass the cash
It's tough to find an investment that has it all. But as an undisputed industry champion with rock-solid financials, attractive growth opportunities, and a reasonable entry point to boot, money transfer giant Western Union comes pretty darn close.

"Here's Western Union's business model in a nutshell," explains CAPS member dudemonkey. "You go to [Western Union] and give them money. They then turn around and give someone else LESS MONEY. Multiply that by [400,000] locations worldwide and you'll see why I like this business."

The numbers don't lie. Western Union's scale allows it to post operating margins that are as much as double that of rivals like MoneyGram International (NYSE: MGI) and Global Payments (NYSE: GPN). But more importantly, that dominance translates into gobs of free cash flow, which management has consistently used in shareholder-friendly ways.

It's no surprise, then, that the stock is also a hit among our more income-oriented members.

"Western Union is the first brand you think of when you want to transfer money," says diversey. "My hope is that this is a long term hold and that the dividend continues to grow. Mmmm, dividends are tasty."

Of course, Western Union certainly has its risks. 2009 revenue fell 4% compared to 2008, reflecting weak demand in the Americas, so the business isn't exactly recession-proof. However, the stock's relatively weak year-to-date price performance might be providing a margin of safety to make those risks worth it.

At a forward P/E of 14, it's at least worth considering.

"I do not know why the stock suddenly fell from 19, but I do know that [Western Union] isn't willing to give up easily," wrote xjp83x last month. "This company has been successful in its business for the past how many ever years and I doubt the management will overlook any pitfalls it might face. Very undervalued indeed."

The best is yet to come
Businesses that invest in products and services at high rates of return are, quite simply, the best ones to be in. To gain a better feel for the ideas mentioned above, or to pan for even more highly rated, high-return businesses, join Motley Fool CAPS today.

It's absolutely free -- one of the most attractive returns on capital you'll find anywhere.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Western Union is a Motley Fool Inside Value and Stock Advisor selection, and Motley Fool Options has recommended a write covered calls position on it. The Fool owns shares of Glaxo. The Fool's disclosure policy is never ever bested.