"I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
-- Warren Buffett
History seems to show that good investing doesn't necessarily mean picking out complex situations and basing your investment thesis on Nobel-level math. In fact, as the current financial crisis has shown us -- not to mention Long Term Capital Management and many other examples -- too much complexity can often end in calamity.
In an effort to track down some of the companies that may fall into that "fish in a barrel" category, I've turned to The Motley Fool's CAPS community. Using CAPS' stock screener, I looked for companies that have a price-to-earnings ratio below 15, a long-term debt-to-equity ratio below 50%, a return on equity above 12%, and that have been highly rated by the CAPS community.
|
Company |
CAPS rating (Max 5) |
Price-to-earnings ratio |
Return on equity |
Long-term debt-to-equity ratio |
|---|---|---|---|---|
|
Vale |
***** |
7.3 |
26.3% |
38% |
|
3M |
**** |
13.2 |
29.5% |
50% |
|
ABB |
***** |
11.8 |
27.9% |
18% |
Source: CAPS.
These are just three of the results that the CAPS screener spit out, but you can run the same screen yourself to see the rest of the companies that made the cut. While the three companies above aren't meant to be formal recommendations, they're good starting points for further research. And on that note, let's take a closer look at each company.
Steeling against recession
Starting back in 2003, there was an almost-rabid excitement over mining and metals companies that infected everyone from Vale to Freeport McMoRan
Then it all came to a screeching halt last year when the realization set in that the economic downturn wasn't just about finance. Vale and Southern Copper have fallen to roughly half of their peak prices, and Freeport's stock has collapsed even further.
Of course, these kind of cyclical swings are business as usual for commodities producers. Vale, which is the second-largest mining company in the world and one of the largest companies in Brazil, has taken the bear by the horns -- so to say. Cost reduction and efficiency have become the mantra at Vale, and management's efforts helped buoy the bottom line in the first quarter as sales volumes and pricing slumped.
As the world's No. 1 producer of iron ore -- ahead of both BHP Billiton
MMM = Many major markets
Most consumers may know 3M primarily through products like Scotch Tape, Post-its, and Scotch-Brite, but the company's consumer and office segment makes up a mere 14% of its total sales. So, to think of Post-its when you think of 3M would be like reducing fellow industrial conglomerate GE
Once we get past those Post-its, 3M has an extremely broad base of products and technologies ranging from industrial explosives, to invisible dental braces, to touch-screen computer displays. The company likewise has some serious geographic diversification with only 36% of sales coming from the U.S. and a strong and growing contribution from emerging markets.
Of course, when nearly every industry is struggling, diversification can offer less protection than usual. CAPS members, however, are betting that 3M's long history of excellent returns on equity -- not to mention its attractive dividend -- make it a solid pick even in a tough market.
You can't resist it, it's electric
Thanks to the global slowdown, ABB is currently doing more cost containing than boogie woogieing. But the company is a major global player in the market for electric transmission and distribution products, and it is expected that significant demand will materialize in the years ahead. Not only will countries in emerging markets need to expand their grids as they grow, but developed countries should provide steady demand as they upgrade their current systems.
CAPS All-Star kirkydu became one of the ABB bulls earlier this month and pitched:
ABB is highly leveraged to the power grid and industrial buildouts in developing markets. The low price is currently a very short term opportunity to load up on a great company with a great balance sheet that is going to generate huge revenues the next decade. A must have core holding, even in front of GE, but I like GE, [Siemens] and ABB as a basket, for any 12-20 position portfolio.
Getting down to business
Now the CAPS community wants you. That's right, do you think these stocks make sense? Or is the community off-base in its faith in these companies? Head over to CAPS and join the 130,000 members who are already sharing their thoughts on thousands of stocks.
Further CAPS Foolishness:
