Stocks of the Week

The idea of supplying customers with recommendations based on shopping habits isn't all that new. If you've signed on for service with Blockbuster or Netflix, you know about the movie recommendations they hook you up with (mine now include Planes, Trains, and Automobiles and Life Is Beautiful -- does that say something about me?). Shoppers on Amazon get a similar slew of suggestions based on their purchases.

Investing in stocks may not be comparable to renting a movie or buying a book on Amazon, but with thousands of stocks out there, finding new ideas can be overwhelming. To help grease the ol' mental machinery, The Motley Fool's CAPS service provides players with daily stock recommendations.

It works like this: CAPS members create a portfolio by rating their favorite and least favorite stocks. The super-secret stock-of-the-day algorithm (which has certain trigonometric functions that drove a mathematics Nobel Prize-winner insane while designing it) is then run. It then churns out highly rated stocks for each player based largely on their selections and the phase of the moon.

As a sample of the kinds of ideas that CAPS doles out, here are the five recommendations the CAPS supercomputer spit out for me last week:

As smart as the CAPS Stock of the Day algorithm is, it's still an algorithm, so be sure to look before you leap on any of its suggestions. With that in mind: some thoughts on China Mobile.

China, China, China -- what's so great about China?
Actually, we might have an easier time ticking off what's not great about China -- there's so much to like.

To start with, the country has a population of 1.3 billion, compared to 300 million in the U.S., 125 million in Japan, and 60 million in the U.K. So companies operating in China have a huge market. In other words: If a company sells a $1 product to every consumer in the U.S., it will top out sales at $300 million. In China, the same company could roll in sales of $1.3 billion. That's a lot of extra ju luo (Chinese for cheese).

The country's economy is also very young in its evolution. In nominal terms, China's 2006 estimated GDP was $2.5 trillion, compared to more than $13 trillion in the U.S. Economic growth in China has been swift -- 2006 estimates peg the GDP growth rate in real terms to be slightly above 11%, a far cry from the U.S.'s staid 2.9%.

All this conspires to create fertile soil for a company like China Mobile. The company not only has a huge market to chase after, but -- as Seth Jayson pointed out when he picked the stock for the Global Gains newsletter -- it's selling a key tool for further economic advancement, and it's the leader in the industry. The company is already valued in excess of $400 billion and is expected to produce average earnings growth in excess of 20% over the next five years.

However, this is also a case of caveat emptor (Latin for caveat emptor). The stock is up in a big way from the mid-$40s where it was trading in early summer -- leading to a recent sell recommendation by Global Gains. The attractiveness of the Chinese market has not escaped the notice of the broader market, and many investors are wondering whether there might be a Chinese stock bubble inflating.

Now for the real question: Are you getting your own CAPS Stock of the Day selections yet? If not, what are you waiting for? CAPS is free, and getting your Stock of the Day picks is much more fun than having me get California's Governator to track you down and give you a wedgie. And don't think I won't.

More CAPS Foolishness:

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