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, the current financial crisis -- not to mention Long Term Capital Management and many other examples -- has shown us that 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've turned to The Motley Fool's CAPS community. Using CAPS' stock screener, I looked for companies that have a price-to-earnings ratio below 15, a long-term debt-to-equity ratio below 50%, and a return on equity above 12%, and that have been highly rated by the CAPS community.

Source: CAPS.

These are just three of the results that the CAPS screener spit out, but you can run the same screen yourself to see the rest of the companies that made the cut. While the three companies above aren't meant to be formal recommendations, they are good starting points to start some further research. And on that note, let's take a closer look at each company.

Getting oriented in the market
Have you ever been the fan of a visiting team at the Philadelphia Eagles' stadium? That's pretty similar to what the business environment has been like for Garmin recently. Direct competitors such as TomTom have been battling hard for market share, while companies in neighboring industries such as Apple (NASDAQ:AAPL) and Nokia have been creeping into Garmin's territory. And that's on top of the fact that consumers have put padlocks on their wallets because of the recession.

Tough competition or not, though, Garmin is a clear industry leader and seems to be staying ahead of the pack technologically. And while sales growth is slowing and margins are eroding, the stock seems to have already priced in a pretty significant slump.

And, of course, we don't want to overlook the fact that while many companies are crumbling due to a heavy debt burden, Garmin not only doesn't have any debt, but it produces very healthy amounts of free cash flow relative to its price.

Keep it simple
Let's not try to get too complicated here with BP. Like competitors ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), BP is attractive because it supplies the world with one of the few things for which there is very reliable demand -- energy. Now, as recent fluctuations have shown, the price of oil may not be all that reliable, but it's unlikely that we'll see a massive cutback in oil consumption any time soon.

But there are some reasons why BP might have an edge as an investment over some of its competitors. For one, it hasn't been as operationally watertight as some of the other oil companies and is now beginning to turn that around. At the same time, the company doesn't have all of its eggs in the fossil-fuel basket and has a dedicated arm for alternative energy.

With an attractive valuation and an even more attractive dividend yield of 6.8%, BP's stock looks pretty darn interesting.

The right medicine for your portfolio
Sometimes financial results are so good that you can't help but stop and gawk. With sales that are up nearly 400% from year-end 2005 to 2008 and a profit that has more than tripled over the same time frame, American Oriental Bioengineering is one of those companies.  

Now, AOB is no Pfizer (NYSE:PFE), but it is an up-and-coming pharmaceutical company based in one of the most dynamic markets in the world -- China. What may be even more interesting is that the market doesn't seem to give a hoot about the numbers that AOB has put up and has priced the stock at just 6.3 times its expected 2009 earnings.

Members of the CAPS community, however, have registered what AOB's growth and low stock price could mean for their portfolios. So far 2,810 of the 2,885 ratings that AOB has received on CAPS have been outperform ratings. Toward the end of last year, one of CAPS' top players, TSIF, joined the AOB bulls and said:

Recent acquisitions of additional distribution paths in China, the largest growth market for medicine, herbs, and other health products! This company was growing at a good rate before the recession. Their prescence in China has much better odds of growing than anywhere else in the world.

Getting down to business
Now the CAPS community wants you. That's right, do you think these stocks make sense? Or is the community off-base in its faith in these companies? Head over to CAPS and join the 135,000 members who are already sharing their thoughts on thousands of stocks.

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