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Investors are always hunting for the next big stock -- the dream stock whose price increases several times over after the market finally discovers it.
In hindsight, it's easy to identify the 10 best stocks of the decade. But I'm more interested in the tools that can not only help me find new stock ideas today but also evaluate tomorrow's greatest companies.
MSN CAPS, a 120,000-member community of investors helping each other beat the market, offers a variety of resources to seek out tomorrow's market leaders. We've enlisted CAPS' nifty stock screener tool to help us find stocks with:
- A market value of at least $1 billion.
- A long-term debt-to-equity ratio of less than 0.5.
- A dividend yield of at least 4%.
- A price-to-earnings ratio of less than 25.
Once we've found our candidates, we'll tap the collective intelligence of the CAPS community to evaluate whether these companies present real opportunities -- or if the numbers fail to tell the true story.
The ratings and comments from CAPS members aren't always on the money, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants. As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals.
Even though President-elect Barack Obama has discussed raising the tax on dividend income for top earners, either to 20% or 25%, dividend-paying stocks have allure in this market. With 10-year Treasurys yielding about 2.2%, companies with the cash flow to continue paying dividends ought to remain in demand.
Let's take a closer look at some of the stocks our screen pulled up one mid-December day.
| Company | Sector | Dividend yield | Market cap | Forward price-to-earnings ratio |
|---|---|---|---|---|
Life insurance | 5.3% | $23.8 billion | 11.7 | |
Oil and natural gas | 5.4% | $118.4 billion | 6.6 | |
Oil and natural gas | 5.4% | $48.5 billion | 5.1 | |
Industrial equipment | 3.9% | $25.8 billion | 11.9 |
Each had five-star ratings -- the highest possible -- at CAPS, signifying that each is considered best-of-breed by the community.
Shares of life insurers have been hammered since American International Group (AIG, news, msgs) imploded shortly after Labor Day. Canadian life insurer Manulife Financial (MFC, news, msgs) is down 55% over that period.
Fear by association isn't sellers' only motivation -- many investors and analysts remain leery of perceived risks associated with long-term-care products.
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Many CAPS participants see reasons for optimism about Manulife's prospects in North America as well as in China's underdeveloped life-insurance market. Of 373 CAPS members rating Manulife Financial, 97% expect the stock to outperform the broader market.
Capitalizing on the turmoil
Shares of many oil companies in recent weeks have been sinking along with the price of crude oil. Total (TOT, news, msgs) has dropped from $75 a share in mid-July to about $53 today.The prevailing price of crude makes certain projects, particularly the development from Canada's oil sands, less financially attractive. But this deep-pocketed company is in a position to capitalize on the turmoil.
The Web site of the Financial Times reported earlier this month that the French oil major was considering a bid for midsized Canadian oil company Nexen (NXY, news, msgs), which holds a small stake in Syncrude Canada, the world's largest oil sands producer. Earlier this year, Total moved to increase its stake in Canada's oil sands, which contain the largest oil reserves outside the Middle East, by acquiring a stake in Synenco Energy.
Many CAPS members are bullish on Total for its large oil reserves and its global footprint. The company also has a strong record of performance, handily beating the Standard & Poor's 500 Index ($INX) over the past five years.
When you add in today's healthy dividend yield, more than 96% of the 583 CAPS members rating Total expect it to continue outpacing the S&P.
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The deal grants StatoilHydro a huge amount of territory to explore as well as access to Chesapeake's drilling and completion techniques, allowing the companies to grow together.
More than 97% of the 802 CAPS members seem to like Statoil's plan: They rate the stock a market-beater.
While the list of companies that have responded to the recession by cutting or eliminating their dividends this year is long and growing, others, including industrial conglomerate Emerson Electric (EMR, news, msgs) appear committed to shareholder payouts.
Emerson, which makes products ranging from thermostats to electric motors, has a solid history as a well-run, diversified, international manufacturer that is poised to bounce back from the downturn.
Of the 996 CAPS members rating Emerson, 98% expect it to beat the broader market.
The collective wisdom of a huge pool of investors can give context to a page of numbers developed through a stock screen. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury.
Make sure you perform your own due diligence. Run your favorite factors through the CAPS screener. It's totally free, and we think you'll like the results.
This article was reported and written by Dave Mock for The Motley Fool. At the time of publication, he owned none of the shares mentioned.
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