As an investor, it doesn't pay to follow the crowd.
In this series, though, we highlight a possible exception -- the collective wisdom of our CAPS community. Read the next section if you're unfamiliar with our methodology. Skip it if you want to go straight to the results.
Why this crowd is different
Jumping into a stock because your rich neighbor did, or because you heard about it from your friend's uncle who used to work on Wall Street, or because CNBC has been talking about it nonstop is a recipe for disaster.
If there's one thing I've learned as a stock analyst, it's that any stock can be gussied up to sound like a world-beater. If there's a second thing I've learned, it's that being a smart person doesn't make you a good investor.
In the hands of a smart person with good communication skills, the never-were and never-will-be stocks sound like tickets to instant fortune. The ancient Greek philosophers made the distinction between rhetoric and knowledge. The former is convincing; the latter is true.
That's why we factor in track record in our Motley Fool CAPS community. We invite everyone to give stocks an outperform (i.e., a "buy") or underperform rating (i.e., a "sell") in CAPS. We then use those opinions to calculate a rating for each stock -- from one to five stars (five being the best). But -- and this is a big distinction -- we give more weight to the opinions of folks whose picks have performed well in the past.
The top 7 buys in financial services
So, with that methodology as prelude, I present to you the top seven stocks that are involved in the financial services industry based on the number of CAPS members who have rated the stock an outperform. Note that in CAPS, banks are their own industry category outside of financial services. Only stocks garnering a four- or five-star rating are included.
|
Company |
Market Capitalization (in millions) |
Outperform Picks |
CAPS Rating (out of 5) |
|---|---|---|---|
|
E*TRADE |
$3,083 |
2,762 |
**** |
|
First Marblehead |
$231 |
2,657 |
**** |
|
NYSE Euronext |
$7,718 |
2,383 |
***** |
|
American Capital |
$1,705 |
1,953 |
**** |
|
CapitalSource |
$1,687 |
1,949 |
**** |
|
Brookfield Asset Management |
$14,337 |
1,194 |
***** |
|
optionsXpress Holdings |
$915 |
1,142 |
***** |
Source: Motley Fool CAPS as of Aug. 12, 2010.
More CAPS members think E*TRADE is a buy than any other four- or five-star financial services player. Do you think another stock belongs in the top seven? Or that a different stock deserves to be the No. 1 buy? Make your thoughts known in CAPS by clicking here. Or just go there to do further research on one of these popular stocks.
