3 Stocks That Just Make Sense

"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 recent financial crisis has shown us, 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. To put together a candidate list, I looked for companies with a conservative balance sheet, a dividend, annualized earnings growth of 5% or better over the past three years, a price-to-earnings ratio below 15, and a high rating from the CAPS community.

Sources: CAPS and Capital IQ, a Standard & Poor's company.

While the three companies above aren't meant to be formal recommendations, they are a good starting point for further research. And on that note, let's take a closer look at why these potential investments might make a whole lot of sense.

Bristol-Myers Squibb
Before you get too excited about that growth rate for Bristol-Myers, it's important to point out that much of the company's recent jump in earnings came from the cash it received on the spinoff of Mead Johnson Nutrition. So, unfortunately, we're not going to see a repeat performance in 2010.

It gets a little more worrisome, though. As with fellow big pharma players Pfizer (NYSE:PFE) and Merck (NYSE:MRK), Bristol-Myers is counting down the days to patent expirations on major products. Chief among them is the 2011 U.S. expiration for Plavix, a treatment for dangerous blood clotting that brought the company $5.6 billion in revenue in 2008.

Bristol-Myers isn't taking this sitting down, though. The Mead Johnson spinoff was part of a larger move to get rid of noncore businesses to make the company more nimble and focused. The company has the stated goal of producing 10 new products in the next seven years and five potential new medicines by the end of 2012.

And just in case there are promising drugs that Bristol-Myers spots outside of its offices, the company has more than $6 billion in cash that it could use for acquisitions.

Thanks to the upcoming Plavix patent expiration, Bristol-Myers is definitely under the gun. But with a history of success, a healthy balance sheet, and an eye toward innovation, I think the company may have what it takes.

Exelon
Exelon owns electricity-generating assets, and owns utility companies in Illinois and Pennsylvania. Sound boring? It is.

Of course, a good investment doesn't have to be exciting. In fact, if "boring" means delivering solid cash flow year-in and year-out and putting cash in my pocket by religiously paying a dividend, then you can sign me up for boring every time. And this is exactly the kind of boring that Exelon is.

I'd be remiss, though, if I didn't point out the great kicker that separates Exelon from comparable companies like Southern Co. (NYSE:SO) and Duke Energy (NYSE:DUK). The majority of Exelon's generating capacity -- 68% at the end of 2008 -- was nuclear. This not only gives the company a cost advantage, but positions it extremely well in case the government enacts some sort of cap-and-trade system.

My fellow Fool and Motley Fool Inside Value advisor Philip Durell likes Exelon so much that it was his pick for the best stock for 2010. I've got to say, I'm with Philip on this one. Exelon makes a whole lot of sense.

Flowserve
Just as its name suggests, Flowserve is all about the fine art of flow control. The company makes a variety of flow control systems for use in a wide variety of industries including oil and gas, water, pharmaceuticals, and chemical.

Based on the company's financials, it's no wonder that CAPS members have given Flowserve a perfect five-star rating. Since 2005, the company has grown revenue by 61% and managed to expand its operating margin from 6.9% to 14.9%. Whatever happened to the recession?

CAPS member SgtGlenn recently became one of the 858 Flowserve bulls on CAPS and had this to say:

A boring, but smart company. It is reasonably valued, sells a globally critical product, and more importantly, has brilliant management.

Getting down to business
Now the CAPS community wants you. Do you think these stocks make sense? Or is the community off base in its faith? Head over to CAPS and join the 145,000 members already sharing their thoughts on thousands of stocks.

Concerned a stock in your portfolio doesn't make sense? Check out my three signs of a terrible investment.