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.

Headwaters (NASDAQ:HDWR)
South Jordan, Utah
52-week low-high: $19.50-$34.96
$1.09 billion market cap

By Stephen D. Simpson, CFA

Commodities may be boring as a general rule, but there are always pockets of innovation and profit that investors can exploit. Companies such as DuPont (NYSE:DD) and Dow (NYSE:DOW) turned chemicals into high-growth businesses such as plastics, while Nucor (NYSE:NUE) pioneered a new way of making steel.

Headwaters looks to do the same in the coal industry. Coal is one of the few natural resources that the U.S. still possesses in abundance, and the majority of the country's electrical power comes from burning coal. Where Headwaters comes in is in finding new ways of using coal byproducts and in finding new technologies to coax the best (and suppress the worst) out of coal.

Headwaters has already made a good business for itself by incorporating the fly ash that is produced by burning coal into building materials like concrete. The company has actually expanded upon this original idea and now produces a full line of building materials that are more environmentally sustainable than traditional materials.

Elsewhere, Headwaters is expanding upon its technology in coal-based fuels. While the company continues to manufacture reagents that alter coal into a synthetic fuel eligible for government tax credits, it is also working on advanced technologies such as coal liquification/gasification and nanotechnology catalysts.

Best of all, Headwaters pursues a soundly diversified strategy that limits its exposure to any one business or technology. Unlike some nanotech or fuel cell plays that are totally committed, win or lose, to one idea, Headwaters has far more flexibility with its options.

Investors looking at Headwaters get a well-diversified, fast-growing company with exposure to cutting-edge technology AND energy but with a below-market P/E ratio.

Fool contributor Stephen Simpson owns shares of Headwaters.

Plum Creek Timber (NYSE:PCL)
Seattle , Wash.
52-week low-high: $27.30-$39.45
$6.77 billion market cap

By Rich Smith

In investing, there's much to be said for standing on the shoulders of giants -- for studying, learning from, and emulating the world's great investors. One of the great generators of both profits for his clients, and witticisms for all of us, is Peter Lynch, former manager of the Fidelity Magellan Fund. This is the man who has me seriously contemplating an investment in Plum Creek Timber, one of the nation's largest timber growers.

When choosing an investment to own for the long haul, Lynch advised: "Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it." It's a philosophy that investors in such business bumblers as Lucent (NYSE:LU) and Enron should have taken to heart. It's also the philosophy that led me to Plum Creek.

I'll put this bluntly: If all the managers at Plum Creek quit their jobs and moved to Cancun for the summer -- the business would keep on growing here without them. Literally.

Because Plum Creek grows trees. And as anyone who's been around this planet over the past several billion years can tell you, trees grow just fine without active management. Your average softwood grows 5.5% per year all on its lonesome. And the value of that wood has increased 4% per annum over the past eight years. Right there, with no help from management, you've got a company that can grow its value by 9.5% on autopilot. Your average S&P 500 company requires a team of highly paid executives to beat that by just 1%!

Add in superb management, and it's little wonder that Plum Creek has crushed the S&P average by a margin of nearly 2-to-1 over the past 15 years. Can't beat that with a stick.

Fool contributor Rich Smith has no position, short or long, in any company mentioned in this article.

No doubt Plum Creek is a fine stock if you want to buy and hold. And hold, and hold, and hold.... That's the trouble -- you can get rich in timber, but only if you have the patience to hang on forever. Personally, I'd like to get rich while I'm still young enough to spend it, and that requires real growth -- the kind that can only come from cutting-edge innovation and proprietary technology. -- S.S.

Hmm. Headwaters. Isn't that the company that diluted its outside shareholders by 21.1% last year? Why, so it is! And earlier this month, it floated 6.9 million more shares at close to an 8% discount to the then-current market price. Thus diluting its investors by another 20%. Fools want to know: If Headwaters' shares are such a bargain, why is the company so eager to part with them? -- R.S.

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