This article is part of our Rising Stars Portfolio series.
Last week, the Financial Crisis Inquiry Commission published its official report, which attempts to make sense out of the housing bubble and subsequent credit crisis. I strongly believe that the financial crisis provides investors with valuable lessons. First, don't bet the house (no pun intended) on one investing idea or theme. Second, no asset, whether it's housing or equities, comes without risk; the notion that houses always go up in value was central to the crisis. Finally, be humble. Many of the key players in the crisis, like Alan Greenspan and Angelo Mozilo, were sorely lacking in humility.
Sadly, I believe the typical Wall Street investor will never master the art of being humble. I'm equally confident, however, that our Rising Star analysts will. Below you'll find summaries of three new stock recommendations from the team.
Rising Star Buy: Zimmer Holdings
According to Rising Star Michael Olsen, there are two types of aging Americans. There are the super-fit, who put tremendous pressure on their joints from all those road races and triathlons. And then there are those who struggle with their weight, who also will suffer from problems with their joints.
With this in mind, Mike has identified an interesting stock idea to capitalize on this growing trend. This week he bought shares in Zimmer Holdings (NYSE: ZMH), "the dominant purveyor of replacement knees and hips, and one of the widest-moat firms out there."
Mike also likes that Zimmer is cheap, trading at just 13 times free cash flow. He believes the market is far too pessimistic about some of the challenges facing Zimmer, and as a result, investors have a great opportunity for a contrarian investment idea. Ultimately, Mike believes Zimmer "stands ready to plug into the powerful demographic trends that are favoring this industry." For more of his fine analysis, read the article.
Rising Star Buy: SUPERVALU
The squeamish among you may want to shield your eyes from this next buy recommendation. This week, Rising Star Jim Mueller bought shares in SUPERVALU (NYSE: SVU), a company he suspects the market is expecting to fail.
Excuse me? Yes, SUPERVALU is in rough shape. It has declining revenues and same-store sales and faces tremendous competition from Kroger (NYSE: KR) and Wal-Mart (NYSE: WMT). It doesn't help that food prices are rising and it needs to upgrade its stores.
Despite all this, Jim sees opportunity. He agrees with Seth Jayson of Motley Fool Hidden Gems, who points out, "SUPERVALU needs only to improve its performance from lousy to mediocre for its stock to offer a great potential payoff for investors."
In fact, this is precisely the type of investment idea that Jim looks for in his Messed-Up Expectations Portfolio. For more of his thinking, read the article.
Rising Star Buy: Madison Square Garden
Rising Star Jim Royal picked up shares of Madison Square Garden (NYSE: MSG) -- which was spun off from Cablevision Systems (NYSE: CVC) about a year ago -- for his portfolio this week. He likes the company's "great cash-generating programming business and its sports teams," and feels it's a potential acquisition for another company.
With Madison Square Garden, you are getting the arena (duh, as my son would say), the sports teams, an array of valuable networks, and an events business. Oh, and maybe Carmelo Anthony, too! This all adds up to an attractive package for Jim, who notes that you're getting "the safety of an income-producing business married to an attractive trophy asset." For more on this compelling idea, check out Jim's complete analysis.
Uncommon wisdom
The great Seth Klarman has advised us that, "successful investors must temper the arrogance of taking a stand with a large dose of humility, accepting that despite their efforts and care, they may in fact be wrong."
Those are wise words for all of us to remember as we continue to dig out of the wreckage of the last financial crisis.
Be sure to follow me on Twitter to get all the latest buy recs from our Rising Stars. And you can follow the companies mentioned above by clicking the links below:
