The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."

But, please, make no mistake -- "Stock Madness 2005" is a GAME!

Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.

Fresh Del Monte Produce (NYSE:FDP)
Coral Gables, Fla.
52 week low-high: $22.62-33.94
Market cap: $1.74 billion

By Nathan Parmelee

I'll grant you that the business of selling bananas, pineapples, melons, and grapes is not terribly exciting. However, it's been a mistake to underestimate the seemingly pedestrian Fresh Del Monte Produce, because its profitability and innovation make up for the lack of excitement of selling fruit.

How do you innovate with fruit? You find ways that take the preparation effort off of the consumer while still delivering the same level of quality. Count me among the lazy who are far more likely to eat fresh precut fruit in a handy container than to buy a melon, cart it home, and cut it up myself. Many people today simply don't have the time. The recent deal with Wendy's (NYSE:WEN) to sell fresh-cut fruit in restaurants is simply an extension of the same idea. It makes sense, and it makes us all healthier, too.

Enough about health, though; we're here for investing. It's the fundamental soundness of this business and a strong dividend yield that initially led Tom Gardner to single out Fresh Del Monte as a Motley Fool Hidden Gems recommendation. In a little more than a year, Fresh Del Monte has compiled a market-smashing return of 17.4% vs. the S&P 500's 3.9%. This has taken the dividend yield down a bit to 2.64%, but with a payout ratio at around 35% of net income and more robust growth expected to return, there is plenty of room for larger payouts in the future.

I'll admit it's a tough matchup with fellow Hidden GemPortfolio Recovery Associates (NASDAQ:PRAA). Portfolio Recovery has solid management in what I think is a great industry for investors. Based on today's prices, though, Fresh Del Monte is slightly more attractive because of its lower valuation and plump dividend.

Fool contributor Nathan Parmelee does not own shares in any of the companies mentioned .

Portfolio Recovery Associates (NASDAQ:PRAA)
Norfolk , Va.
52-week low-high: $24.06-$43.00
Market cap: $568 million

By Stephen D. Simpson, CFA

Portfolio Recovery is all about trying to make the best out of a bad situation. Specifically, this publicly traded collections firm does business by purchasing defaulted consumer receivables (unpaid bills) and then attempting to collect on the outstanding balances.

Let's be clear about something here: Portfolio Recovery does not try to collect from people who have missed a payment or two. By and large, their list of business consists of accounts that have been overdue for so long that the original lender/vendor has thrown in the towel and agreed to sell the claims for pennies on the dollar.

While competition has pushed up the price that Portfolio Recovery must pay for these receivables, the company is still seeing a profitable spread and growth remains strong. Revenue grew 38% in the last quarter (earnings were up 42%, too) and productivity continues to improve.

Valuation seems reasonable. Despite a good run, the company's enterprise value-to-free cash flow ratio is a startlingly low 11. Just as good, the company has strong margins and very good returns on capital (that is, a return on assets of over 18% and a return on equity of more than 20%).

What's more, the macro picture is solid as well. Americans have high (and growing) levels of consumer debt and that doesn't seem likely to change. So long as people wish to live beyond their means, there will be payment defaults and collectors like Portfolio Recovery will profit by making sure debtors pay back at least some of what they owe.

Fool contributor Stephen Simpson, CFA, owns shares of Portfolio Recovery.

Let's not look at one year of data and write Fresh Del Monte off. We're Fools, right? Yes, debt grew at Fresh Del Monte, but the company had a larger debt load in 2001 and worked it down to $45 million before tapping the bank again for its recent expansion. People will always need bananas, pineapples, and grapes. On the flip side, Portfolio Recovery Associates is a great company, and I happen to believe it's well-positioned, but what happens if Americans collectively wise up and tighten their fiscal belts? -- N.P.

Pineapples, bananas, and tomatoes -- oh my! Fresh Del Monte sales were up 17% in 2004, but gross profit was down almost 20% -- oh my! Debt increased by $318 million, but shareholders equity grew by only $127 million -- oh my! Free cash flow down almost 70% -- oh my! Although the P/E looks low, I think I'll skip the stock and enjoy a nice Dole pineapple or Chiquita (NYSE:CQB) banana instead. -- S.S.

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