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 -- not to mention Long Term Capital Management and many other examples -- too much complexity can often end in calamity.

In an effort to track down some of the companies that may fall into that "fish in a barrel" category, I looked for companies that have shown signs of brilliance. Specifically, I focused on companies with a conservative balance sheet, a forward price-to-earnings ratio below 15, a return on equity above 12%, and a dividend. I've also included the ratings that the Motley Fool CAPS community has given each of these stocks.

Sources: Motley Fool CAPS and Capital IQ (a Standard & Poor's company).

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

PetroChina
My trepidation over Chinese stocks is no secret. Of course there's a very big difference between a small, relatively young China-based company like A-Power Energy (Nasdaq: APWR) -- which saw its stock halted after its auditor resigned -- and a global giant like PetroChina.

Now sure, what PetroChina doesn't have is the promise of massive growth that many smaller Chinese companies can claim -- the company is already worth hundreds of billions of dollars, and the energy business is a global one. But investors should be able to sleep better with PetroChina in their portfolio, since it's very similar to buying a China-based ExxonMobil (NYSE: XOM). While I may not consider it quite as amazing as Exxon -- for the most part Exxon's numbers are simply better -- it's a similarly large, stable, quality fossil fuels producer.

And of course there's also the matter of PetroChina having exploration opportunities in China that are far more difficult for non-Chinese companies to get access to.

PetroChina has also been trying to use its heft to grow its footprint outside of China. Though its massive partnership deal with Canada's EnCana (NYSE: ECA) recently fell apart, it's made a number of significant investments in the past few years, including the $1.7 billion investment in Athabasca Oil Sands Corp last year.

Of course, the flip side to this coin is that this is still a company that's controlled by the Chinese government. That means that when it comes to corporate decision-making, the cues won't be coming from common shareholders.

Ares Capital
Since dividends are suddenly back in style, I'm willing to guess that many investors that find themselves staring at Ares' stock made their way there because of its huge dividend yield.

First, the bad news. Perhaps it goes without saying, but all dividends are not the same. Procter & Gamble (NYSE: PG), for instance, is a huge diversified operating business that cashes in on the strength of its branded products. While the state of the economy can add or sap wind from its sails, P&G's business is a very reliable one and, therefore, so is its dividend.

Ares is a very different situation. The company is an investment vehicle itself, using its capital to invest in the debt and equity of small to mid-sized private companies -- Huddle House and Things Remembered, for instance. Ares' success -- and by extension, the health of its dividend -- rides on the ability of management to make wise investments. Tough times over the past few years have prompted a drop in annual dividends from a high of $1.68 to the trailing total of $1.40.

But how has management done overall so far? Shares were originally sold in 2004 for $15, and the company's most recent book value per share was $15.45. Meanwhile, Ares has returned more than $10 per share to investors through dividends. Those aren't blow-your-mind returns, but it's pretty darn good considering that period included the global financial meltdown.

Microsoft
What can I really say here? This is the stock that CAPS members like least of this group, but it's the member that I like the best. Am I biased because it is one of the largest ownership positions in my portfolio? Or is just one of my largest positions because it's such a good deal?

I know all of the reasons why Microsoft is supposed to be a dying giant in the years ahead, but I'm not convinced. At least, I'm not convinced that it's as bad as the stock's price suggests.

We've got a low, low earnings multiple, a rock-solid balance sheet, and a dividend that's decent now and has plenty of room to grow. In fact, some investors have suggested that Microsoft should just go ahead and double its dividend immediately (and it could!).

Bottom line: I think Microsoft's stock makes a lot of sense.

Getting down to business
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