The best stocks come from a variety of places, many of them unexpected. Fellow Fool Tim Hanson reviewed the 10 best stocks of the past decade, discovering that many of these top-performing stocks were small companies in obscure industries. But looking back and learning the traits of yesterday's top performers is only half the job -- investing is all about finding and buying into tomorrow's monster stocks.
If you're looking for the cream of the crop -- the top stocks in their respective sectors -- Motley Fool CAPS is a great resource to quickly hone your research. Thanks to CAPS' success-favored system, the stocks with the brightest future bubble to the top.
Time for a revelation
If you're looking hard at coal producers, for instance, the 125,000-member community of investors has already weighed in on the top stocks in this market. Listed below are the five highest-rated coal stocks in CAPS:
|
Company |
Market Cap |
Forward P/E |
CAPS Rating (out of 5) |
|---|---|---|---|
|
ICO International |
$404.7M |
11.0 |
***** |
|
Teck Cominco (NYSE:TCK) |
$2.1B |
2.3 |
***** |
|
Arch Coal (NYSE:ACI) |
$2.4B |
6.1 |
***** |
|
Anglo American |
$28.9B |
4.1 |
***** |
|
BHP Billiton (NYSE:BHP) |
$124.4B |
23.4 |
***** |
Data and star rankings from CAPS. Financials from Capital IQ as of Feb. 6.
Teck Cominco
Teck Cominco shares have fallen more than 90% since mid-2008, as commodities prices crashed through the floor. The mountain of debt the company took on to fund its acquisition of Fording Canadian Coal Trust last year has given many investors the willies. Many expect that Teck will need to sell off some assets to pay down the debt, as Rio Tinto (NYSE:RTP) has done in selling assets to Vale (NYSE:RIO).
But amidst all this turmoil, many CAPS members envision the company emerging as a possibly smaller (yet still high-quality) miner with valuable assets. The low valuation keeps many members bullish on its future, because they see a lot of the risk already priced into the firm, putting the stock squarely into the top five.
Arch Coal
CAPS members recently increased their bullish sentiment for Arch Coal after the stock got hammered, even as the company maintained that it stands on a solid fundamental footing. While Arch's most recent quarterly earnings dropped 23% year over year, its full-year earnings more than doubled over the previous year. Painting a "bad now, good later" picture, the company expects that reductions in global production because of the downturn will lead to a rebound in 2010 and 2011 as part of the commodities cycle. And while metallurgical coal has been hit by the downturn, the company's CEO asserts that coal used in power generation is recession-resistant, since few consumers revert to candles for their lighting.
Coupled with a five-year growth estimate of 36%, the stock's price is right for long-term appreciation, according to many CAPS members.
BHP Billiton
Lots of cash is a good way to earn a spot on the top stock list, and BHP Billiton is looking much better than peers, with strong cash flow and lower net debt than many others. Despite reporting a drop in net profit due to one-time charges, revenue rose 17%, and its cash flow in the first half of its fiscal year jumped 74% to $13 billion. After not buying Rio Tinto last year, it holds only a $4.2 billion debt load and maintains the flexibility to pick and choose acquisitions opportunistically while other coal miners are in the disadvantaged position of needing cash.
BHP Billiton is joining many other miners like Cliffs Natural Resources (NYSE:CLF) and Patriot Coal (NYSE:PCX) by cutting spending, but it only plans to cut capital expenditures by about 13%. The ability to zig while others zag gives the vast majority of CAPS members rating BHP Billiton the confidence that an investment in the company will beat the market going forward.
Take it from the top
Keep in mind that these top stocks are not simple recommendations to buy; they are a starting point for further research. But these highly-rated firms must have something behind them -- after all, they didn't get to this level without many of the sharpest investors out there giving them the thumbs up. Take the opinions as just that, and perform your own due diligence to see if you agree.
To see the top five stocks of any given sector, check out Motley Fool CAPS today. With not a penny charged for any of the information and resources contained in CAPS, it's a bargain at twice the price.
