A 5-star tech stock worth a taste

• Sell 140 shares in Vanguard Mid-Cap ETF (VO, news, msgs) at the open.

• Buy 500 shares of Nvidia (NVDA, news, msgs) at the open.

Those who've been following my online stock-picking blog, "EldrehadsPicks," in the CAPS community, know that I believe investing in strong, growing companies that are suffering from temporary setbacks can be a great way to achieve market-beating returns.

I think Nvidia (NVDA, news, msgs) may be an excellent example of this kind of opportunity.

For starters, Nvidia boasts a net profit margin of nearly 20% and a stellar return on equity approaching 35%, and it carries no debt. What's more, Nvidia boasts a five-year compound annual-revenue-growth rate of about 16.5%, and a compound net-income-growth rate of over 50%.

• Join CAPS and play the MSN Stock Challenge: Top prize, $15,000

OK, they specialize in high-end computer graphics cards, and we've all been reading how the U.S. consumer is tapped out. But you can't ignore this kind of long-term growth story for a relatively cheap stock, with a price-earnings ratio of less than 15.

A five-star stock

Of course, I wouldn't be the CAPS Commando if I didn't say that Nvidia's stock boasts the highest possible rating from the thousands of investors who use CAPS. That's a perfect five stars. And it's not hard to see why.

Don't just take it from me, however. Here's what one of my fellow CAPS participants, "tling," has to say:

"Amazing how quickly stocks are forgotten. NVDA has lost almost half its value since hitting a peak in late 2007, driven by fears of rising costs and tighter competition from Intel (INTC, news, msgs) and Advanced Micro Devices (AMD, news, msgs). And I understand those fears, but they're overblown.

Costs going up for NVDA means costs are going up for AMD as well. But unlike AMD, NVDA has room to cut margins; AMD doesn't anymore (look at their financials -- deep in the red, and assets have shrunk as liabilities have grown since last year). Prices will have to go up for AMD, and NVDA can choose to stay put and continue asserting market-share dominance over AMD."

Consistent with my strategy of staying fully invested via ETFs and replacing those holdings over time with promising individual stocks, I'm also selling 140 shares of the Vanguard Mid-Cap ETF (VO, news, msgs)

Take the challenge

So far, it would appear that this strategy is working out fairly well. If you haven't taken the time yet to check out what CAPS has to offer, I couldn't encourage it more strongly.

After all, you may just find your next big winner. While this round of the Strategy Lab isn't yet over, so far it would appear that CAPS has helped me uncover a few.

Plus, if you join now, you can still compete for some great prizes in the MSN Stock Challenge. Be sure to check out my earlier journal with three tips for winning.