5 All-Star Stocks Fighting the Tide

When the clock's ticking down and the game's on the line, which of your teammates do you trust to sink a winning shot? Sure, you could dish the rock to your resident superstar -- but what if he's playing ice-cold at the moment? So instead, you pass to the guy with the hot hand, the one who will be deemed en fuego tomorrow on ESPN.

Momentum investors are looking for stocks in a similar state of sizzle. But momentum by itself will only get you so far. I prefer to find high-quality stocks that also have some positive inertia on their side. It's like kicking the ball out to your team's superstars when they do have a hot hand.

There's no doubt that now's a tough time to try to find winners out there, but to find the current league leaders, I ran a simple momentum screen on The Motley Fool's CAPS screener. Each of the stocks below was up double digits over the past four weeks -- despite the S&P's loss -- and has been rated highly by CAPS players.

Sources: Yahoo! Finance, Capital IQ, and CAPS as of Feb. 6.

At first glance, this sure looks like a high-quality group. But, as always, I highly advise taking a close look before you throw a bounce pass in the direction of any of these stocks. In fact, I'll even kick off your research with a look at CVS Caremark.

Providing the pep
The recent pop in CVS Caremark's stock is largely making up ground after the plunge that resulted from the company’s disappointing outlook for 2009. Management is expecting the sagging economy to weigh on profits, leading it to project the coming year's earnings below what Wall Street analysts were expecting. Apparently many consumers worried about their own bottom line are finding ways to avoid going to the doctor, which isn't a good sign for a company like CVS Caremark that fills prescriptions.

Some of the market's initial pessimism over CVS Caremark's 2009 outlook was quickly offset by CEO Tom Ryan insisting that there isn't a price war going on in the Pharmacy Benefit Management industry. Now, that certainly doesn't mean that Ryan is likely to sit down to have some cookies and milk with the folks at Express Scripts to talk about the good times, but it seems to have comforted those who saw battle on the horizon.

CVS Caremark also decided to up its dividend by 10.5% -- definitely a positive move when the news wires are filled with stories of dividends going AWOL.

Looking ahead
Most investors eyeing CVS Caremark are likely doing so for a few main reasons. First, the company should weather the recession better than companies in procyclical or discretionary businesses. CVS Caremark should also benefit from the aging U.S. population (remember that baby boomer thing?). It is also expected that the increasing use of generic drugs will be a bottom-line boon to CVS Caremark, since generics are lower-priced, but more profitable.

Of course, the real question might be: Why go with CVS Caremark over its formidable competitor Walgreen (NYSE:WAG) -- or, heck, the monstrous Wal-Mart Stores (NYSE:WMT), which has given both industry titans grief by stepping into the fray? Even if we toss out Wal-Mart and stick with the pure players, we can't get a tiebreaking vote from the CAPS community, since both stocks are rated four stars (though CVS Caremark has a slightly better outperform percentage).

CAPS member thechumley recently gave Walgreen's a thumbs-down, saying that the company hasn't done well in the generics market and calling CVS' takeover of Caremark "a trump." Meanwhile, CAPS All-Star NechesInvst rated CVS Caremark an outperform based on valuation, writing: "While CVS has some debt, it doesn't seem to be too heavy a burden. It's currently trading at a PE lower than it's historic growth, and while sales are lagging, EPS continues to grow."

Personally, I think investors can do well going with either pharmacy chain -- in the current environment, they're both likely to hold up better than the overall market, not to mention businesses that rely on discretionary spending. However, I might give Walgreen's the edge given its slightly stronger balance sheet, slightly better valuation, and better historical returns on its equity and capital. CVS Caremark is also still integrating two major acquisitions -- Longs and Caremark -- which has the potential to lead to the type of indigestion that Tums can't cure.

Fielding your team
So do you think any (or all!) of these companies deserve a place on your All-Star team? You can share your thoughts on that, or check out more of what your fellow Fools had to say, by stopping by CAPS. And while you're there, you can also take a peek at a few more of the 5,400-plus other stocks that are rated on CAPS.

I think I heard a “booyah” somewhere out there – thanks, Stuart Scott!

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