The following article is part of The Motley Fool's "Stock Madness 2006," based loosely on the annual NCAA College Basketball Tournament, a.k.a. "March Madness." Throughout the competition, our writers and analysts will engage in head-to-head competition. You, dear readers, are the fans and referees -- after you read these exciting duels, your votes will determine who moves on to the next round of play. The writer who survives the tournament will be our champion and most valuable "coach."
But please, make no mistake -- "Stock Madness 2006" is a GAME!
OK, here's my team:
(NYSE:XOM)-- The powerful and diversified oil company with a bright future.
(NASDAQ:BBBB)-- The Motley Fool Hidden Gems pick that is changing the face of education.
(NASDAQ:HANS)-- The energy drink maker that earned the title of the Market's Best Stock.
World Wrestling Entertainment
(NASDAQ:WWE)-- The cash machine that created superstars like Hulk Hogan and The Rock.
(NASDAQ:RHAT)-- The premier name in open-source software.
Let's take a minute to let the awesomeness sink in. Ready? Ahhhhhhh.
This round, I'm giving more playing time to WWE and Red Hat. These guys want to show they can put points on the board.
World Wrestling Entertainment
My opponent John Reeves can make all the wrestling jokes he wants. The fact is that WWE is making a comeback.
The last two quarters showed very positive trends. Pay-per-view sales were up and the popularity of WWE was exploding internationally. Healthy free cash flow generation allowed Vince and Linda McMahon to reward shareholders with a dividend yielding about 6%. With a strong brand, favorable trends, and hefty dividend, WWE is a sound investment.
The movement toward open-source software is evident even to a programming newbie like me. Red Hat has had tremendous success providing subscriptions, training, and support for Linux, an open-source alternative to Microsoft Windows. Red Hat was rated as the best business vendor by CIO Magazine two years in a row, beating out big dogs like Cisco, Apple, and Microsoft.
The stock is pricey at the moment, but rarely will you find a great company trading for a bargain. Red Hat is in a unique position to benefit from the open-source phenomenon, so you can't dismiss it on price alone.
Scouting the opposition
My opponent has a weak link on his team called NutriSystem. He will try to dazzle you with fancy stock charts, but what is the future like for NutriSystem? Keep in mind that dieters are a fickle group. When the next Atkins emerges, NutriSystem will be left in the dust.
If you want to play the chart game, here's one to examine closely.
McDonald's is another investment on shaky ground. Fast-food patrons are increasingly turning to healthier choices like Cosi, PaneraBread, and even McDonald's offspring Chipotle. I like McDonald's real estate more than I like the food.
This will be a tough contest, but I'm confident my team is going on to the Final Four.
John Reeves' rebuttal
If Joey's "team" was an equal-weighted portfolio, it would have the following asset allocation:
- Large-capitalization stocks: 20%
- Mid-cap stocks: 20%
- Small-cap stocks: 60% (!)
Unless you have the risk tolerance of Evel Knievel, such a portfolio would be far too volatile for most folks to emulate. It's perfectly fine to take out a small position in a growth stock like NutriSystem
Joey Khattab owns shares of WWE and Blackboard. The Motley Fool has a disclosure policy.